Real GDP was a respectible 1.9% due to a GDP Deflator which implied a measly 1.1% inflation rate. Lets take a closer look at what GDP would have been using a few alternative measures.
Core and Non-Core CPI
As can be seen below, the resulting "Real GDP" looks dramatically different substituting either measure of CPI for the GDP Deflator. Using Core CPI (as measured by the quarter over quarter change in the seasonally adjusted core index), Real GDP for the quarter shrinks 1.4% to 0.5% annualized. Non-core CPI (same methodology) shows Real GDP contracting by -4.5% annualized as CPI jumped a shocking 7.9% Q1 to Q2 (217.403 / 213.301)^4-1!
Which do I believe is an accurate measure?
Looking below, one can see the strong historical relationship between CPI and the GDP Deflator. This relationship breaks down in Q4 2007 and continues to move wider into the second quarter.
The recent inflation uptick we've experienced should be better accounted for. I expect the final GDP figure for Q2 to fall somewhere between the two alternative measures (along with another revision to Q4 and Q1) in the coming months.
Sources: BEA, BLS
Update: much of the inflation is being hidden in nondurables
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