The purpose of this research is to analyze the relationship between two macroeconomic variables as a means of improving the accuracy of estimations for demand for retail sales. The two macroeconomic variables are the rate of inflation and real wage levels.
The chain of assumptions upon which this analysis is based is as follows: (1) an increase in the rate of inflation causes goods to be more difficult to purchase, all other factors remaining unchanged; and (2) an increase in the rate of inflation causes the purchasing power of wages to decrease, all other factors remaining equal. A decrease in the rate of inflation is assumed to have the opposite effects. The chain of assumptions leads to the following hypothesis: A change in the rate of inflation will lead to a decrease in demand for retail sales.
To test this hypothesis, the relationship between changes in the rate of inflation and changes in the level of real wages was assessed through the application of quantitative analysis. The quantitative procedure applied was Pearson product-moment correlation analysis. Statistical significance of the relationship between the two variables was established at the p<.05 level.
Inflation was represented by the Consumer Price Index (CPI) for all items. For purposes of this analysis, changes in the CPI from the prior year were used, as opposed to the actual CPI. The changes in the CPI from the prior year were calculated for each year included