Is Consumption Credit Inflationary? An Empirical Assessment for 30 Countries

Until the eruption of the 2007-2008 international crisis, the decade was characterized by a high growth of credit –especially credit lines for consumption– and of GDP in a large part of the developed and developing worlds. By the end of the period, the process coincided with increasing inflationary pressures in several countries, which might suggest a potential relationship between credit for consumption and inflation. To give an answer to this question, we have performed an econometric analysis using information on 30 countries, both developed and developing, for the period 1995-2007. Our findings reject this hypothesis unequivocally since they provide no evidence whatsoever of a relationship between these two variables. Our interpretation of this first evidence is that the absence of the anticipated effect may result from the scarce weight of credit on the private sector’s spending.