Study on nature of inflation and its relationship with GDP growth rate: a Case Study on Bangladesh

Abstract

The rapid rise in food prices has been a burden on the poor in developing countries. In many countries such as in Bangladesh, food price inflation is higher than aggregate inflation and contributing to underlying inflationary pressures. Losing the purchasing power and increasing the cost of production indicates the high rate of inflation. Sometimes high inflation has adverse impact on growth through a variety of channels. It will increase uncertainty in investment and withdrawal of saving for consumption support. In south Asia- Bangladesh, Pakistan has experienced double digit inflation rate. However inflation and growth rate called real GDP growth rate have positive and negative relationship depending on situation. Due to supply gap for natural disaster cause rapid growth of inflation rate mainly contributed by food price and regression analysis reflect a positive relationship with inflation and GDP. Inflation fluctuates all the time because of the fluctuation of the money supply. But in recent years, we came to know that international affairs are influencing to increase the inflation rate. So M3 expansion and global price hike also contrite to inflationary pressure. Consistent budget deficit and exchange rate deteriorate the economic growth which directly relates with inflation and also can increase unemployment as a result of high inflation due o increased production cost resources may be reduced. So authority may work on inflation control for the clear future signals.