Investingating the Growth-Inflation Nexus in Africa

Each macroeconomic policy is aimed at maintaining the high growth rate of production at a high and sustainable level and maintaining inflation at a stable and ideal level. Stabilization of the price level is important to determine growth rate of output. As a result, central banks in some countries now begin inflation targeting. These decisions raise important questions: What is the most appropriate inflation target? Literature on the essence of the relationship between inflation and growth dates back to the 1960s.

Omoke Philip Chimobi identifies the relationship between inflation and economic growth in Nigeria's research "Inflation and Economic Growth in Nigeria" (2010) and uses CPI and GDP for measuring inflation and economic growth, respectively. Various research reviews show that inflation never prompted economic growth. This study was conducted between 1970 and 2005, during which there was no common relationship between economic growth and inflation, so there was no long-term relationship between the two variables. But the conclusion is that high inflation is always bad for economic growth.

Before we start analyzing the relationship between inflation and economic growth, we need to explain what inflation is and what kind of starting point is economic growth. Different scholars define inflation and economic growth in different ways, but they all have the same meaning. Let's look at them as follows. Inflation: Prices rise, inflation rate is the rate of change in price index over a specific period and can be measured by consumer price index (Froyen, 1993: 8-9). Inflation is an increase in the average price of money and services (Romer, 2012: 514). Inflation is an overall rise in prices (Mankiw, 2010). Inflation is a general level of price increases of goods and services over a period of time in the economy (www.en.wikipedia.org, 02/10/10)