On the other hand, the GDP deflator is a Paasche index based on 1995 weightings in National Income Statistics, which is obtained by dividing nominal GDP by real GDP. The fact that real GDP has a base year preceding that for the CPI does affect the price index bias.
While a Laspeyres price index tends to overstate the increase in the cost of living, a Paasche price index tends to overstate the decline in the cost of living.3 A Laspeyres price index has an upward bias because it does not necessarily incorporate the shift of consumer behavior from more expensive goods to less expensive ones as prices of various goods change to a different extent over the years (intertemporal substitution effect).