The relationship between effective interest rates and the consumer price index CPI as an inflation measure: evidence from Jordan

Abstract

The aim of this research is to figure out the type of relationship between the effective interest rates and the consumer price index rate CP and to determine the real relationship between them. In order to achieve the desired objectives of the research, we calculated the rate of inflation through the change in the consumer price index CPI, for the period 2010-2018. A Pearson Correlation is also conducted between the CPI rates and effective interest rates for the same period. The outcomes of CPI calculations show that the CPI average for the year 2018 reached 124.66 points, indicating a 5.33% difference from the same period of 2017, and this difference is referred to as the inflation rate, also, the outcomes of the correlation analysis conducted refers to a negative relationship between the CPI rates and the effective interest rates.