Many of the statistics in National Accounts are given in both current and constant prices. Current prices are the prices actually paid. GDP is normally first calculated at current prices. However, in comparing different years, it is important to know if the economy is really making more, or if we are just charging more for the same thing.

For example, if a brewer sells 10 litres of beer for €100 in 2019 and puts up the price so they sell the same amount for €110 in 2020, then they have not produced any more goods, even though their total sales have gone up by €10. All other things being equal, this price change by the brewer will increase GDP if we measure it in current prices. This kind of price growth is due to inflation. In an economy as a whole, If the total spending or the total income has gone up but only because of an increase in prices then people are not any better off – they are still using the same amount of goods and services but the prices at which these are bought and sold have gone up. A little bit of inflation is fine, but in general high inflation is a bad sign, so you would not see GDP growth due to inflation as being positive.

Prices can also go down (deflation) and, as with inflation, it is better to remove this change in price to get a truer picture of the change in production.

A better measure of real growth looks at 'volume' changes and removes the effect of price changes. So if the brewer in our example above makes and sells 11 litres of beer for €110 in 2020, then they have not increased their prices but have produced an extra litre worth €10. That would then be the kind of actual growth (or 'real' growth) we want GDP to be measuring. So to get the right measure of the economy it is necessary to see which changes are due to price increases and which changes are because the volume of goods and services has increased. While services cannot be measured in litres, we talk about ‘volume’ changes in these activities too; for example more journeys by bus is an increase in transport volume.

Fortunately, there are very detailed statistics on Prices so we know a lot about what price increases or decreases have occurred across the economy. When we measure the change in total current price, we can then take out the price changes so we are left with a good measure of volume change, or constant price growth.

Because the constant price GDP tells us more about whether the economy is growing, it is sometimes referred to as the real GDP, while the current price GDP is called the nominal GDP.

Constant prices in National Accounts are calculated by a method called Chain Linking.