Does GDP have any connection with CPI?

Question

Any ways to link this 2 things?
thx...

Answer 1

There IS a connection. GDP measure economic growth, CPI measures inflation. Mainstream economic theory accepts the idea that too-rapid economic growth will ignite inflation. In other words, if GDP is very high, it is likely that the CPI will soon become uncomfortably high -- this is precisely why the Federal Reserve watches the GDP as one of the things the considering in deciding whether to raise interest rates. The two statistics are expected to be correlated to some degree.

In the real world -- just watch CNBC the day quarterly GDP numbers are released. You can bet that if the GDP number comes out and it's rather high (say, 3.5% or higher), then that day the bond market will fall in price as people sell bonds -- in anticipation that inflation will increase, and interest rates will increase, which makes existing bonds lose value.

Answer 2

There is no direct link as such because GDP is an absolute value while CPI is an index.

However, the GDP Deflator is similar to the CPI in that it is a measure of average prices. The "bundle" of goods and services here includes all things produced in the economy, not just consumer goods and services that are reflected in the CPI.

Hope this helps