Productivity and Inflation

The relationship between productivity and inflation is important in understanding the workings of modern economies, for reasons that we now briefly discuss. Over the past few decades, much of the developed world and developing world alike have experienced the twin phenomena of declining inflation and rising productivity. There is a substantial body of research suggesting that inflation lowers the rate of productivity growth, and in turn, economic growth. Much of this research uses time series data to determine the veracity of the hypothesis that rising general price levels lead to proportional or more than proportional changes in overall productivity growth, though some recent research has raised some interesting questions about conclusions that were hitherto considered unimpeachable. However, while much of the earlier research into the relationship between productivity and inflation finds negative relationship between the two variables flowing from inflation to productivity, more recent decades have found periods of improving productivity growth juxtaposed with relatively stable inflation，Economists have more recently been interested in exploring the ways in which higher productivity driven by the explosion of information and communication technology and the internet have driven the disinflation observed in more recent decades.