GDP Vs Inflation.

Saturday, January 1, 2011

Whenever, one talks about country's economy, the two parameters GDP and inflation plays important role in determining country's economy. Before getting into the details, lets look at brief definition of GDP and Inflation.

GDP: The gross domestic product (GDP) is the amount of goods and services produced in a year, in a country. It is the market value of all final goods and services made within the borders of a country in a year. It is often positively correlated with the standard of living, alternative measures to GDP for that purpose.

Inflation: The consumer price index (CPI) calculates the change in consumer price of a set of goods and services such as food, clothing, fuel, housing, medical, transport, education etc.

I believe, any country is considered to be in growth path, if year on year GDP% growth is greater than inflation % otherwise inflation is bound to eat up into the growth. Towards, comparison of GDP & inflation parameter, I have taken 3 countries. US which was most affected by economic downturn and China & India, which is claimed to be least affected economic downturn.


US GDP annual rate for 2010 is 2.6%

US inflation rate :

US inflation rate for 2010 is 1.1%

This means, GDP growth is much higher than inflation which is a positive sign for US towards growth. As per the graph, it was only for few months in the year 2009, growth was around -6% and inflation around -2%, which mean inflation was higher than GDP, this period could well be termed at the worst period in US economy due to recession.

Now let's look at China's GDP and Inflation

China's GDP:

China's GDP growth percentage is around 10% for year 2010.

China's Inflation:

China inflation rate was in range of 3 to 5%. However, comparatively GDP rate of 9% is higher when compared to inflation, which I believe is a positive sign.

Moving on, let compare India's GDP Vs inflation.

India's GDP:

India's GDP rate is for 2010 is around 9%.

India's Inflation
India's inflation rate is 9.7% around October 2010. As per an article in a leading daily, the food inflation has said gone beyond 14% in the later part of 2010. Interestingly, all through 2008 to 2010, the inflation has always scored higher percentage when compared to GDP percentage. If this is true, I do not understand on what basis, India is claiming to have withered recession with minimum impact ?

Again, with inflation galloping in India, are we moving towards hyper inflation ?, on which I had written an article earlier.

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