How Does Inflation Rate and GDP Growth Rate vary across countries?

Abstract

Central banks worldwide aim to maintain a target inflation rate of 2 %, especially during recessionary periods defined by two consecutive quarters of negative economic growth. However, undesirable inflation rates emerged following significant global events such as the 2008 - 09 Global Financial Crisis and the COVID -19 recession, raising questions about the correlation between inflation and recession. This study investigates the relationship between inflation rates and recessions across countries with varying levels of GDP per capita, using data from the World Bank spanning from 1980 to 2022 to perform correlation calculations and analysis. The findings indicate that this correlation is not uniform but varies significantly depending on a country’s level of economic development, suggesting that less developed economies might experience a stronger linkage between these two variables. Understanding these variations is crucial for the development of more effective macroeconomic policies that aim to stabilize inflation and foster sustainable economic growth, particularly in economically vulnerable nations.