Regional Price Parities and the Real Economic Performance of US States

Official state accounts report real Gross Domestic Product (GDP) and its growth rate by adjusting nominal values for inflation with a national price index, yet prices and inflation vary widely across states. GDP per capita serves as a broad measure of regional productivity, but accurately adjusting for inflation is essential for cross-state comparisons. Some analysts account for inflation using the local Consumer Price Index (CPI) instead, but local CPIs fail to capture rural price trends and undermine comparability across states and with national averages. We compare these approaches with regional price parities (RPPs) adjustment, which incorporate state-specific price levels and local inflation differences while remaining anchored to the Personal Consumption Expenditures Price Index. We apply this comparison to reassess economic performance across U.S. states from 2008 to 2024. For most states, the standard methods yield similar results, although RPP adjustment compresses the nationwide income distribution. However, in states with modest incomes and high or low relative price levels or persistent differences in local inflation rates, the choice of deflator materially changes the comparative level and trend. We recommend RPP adjustment as the benchmark for comparing regional performance, with implications for place-based policy and regional convergence research.