Inflation, Economic Growth, and Household Consumption in Developing Economies: An Empirical Analysis of Macroeconomic Conditions and Household Welfare

Abstract

This study examined the effects of inflation and economic growth on household consumption as an indicator of household welfare in developing economies. A quantitative, explanatory panel-data research design was employed using annual secondary data from selected developing economies covering the period 2000–2024. The data were analyzed using descriptive statistics, correlation analysis, panel unit-root tests, and fixed-effects panel regression, with country and year effects controlled to account for unobserved heterogeneity and time-specific influences. The empirical results showed that inflation had a statistically significant negative effect on household consumption (β = −0.384, p < .01), indicating that rising prices reduce purchasing power and constrain household expenditure. In contrast, economic growth had a statistically significant positive effect on household consumption (β = 0.271, p < .05), suggesting that improvements in economic activity contribute to household welfare through increased income and economic opportunities. The overall regression model was statistically significant (F = 18.64, p < .001) and explained approximately 42.7% of the variation in household consumption (R² = .427). The findings indicate that sustainable economic growth can improve household welfare, but its benefits may be weakened by persistent inflation. The study therefore highlights the importance of combining growth-oriented policies with effective inflation management and measures that protect household purchasing power, particularly among economically vulnerable populations.