Inflation and Income Inequality in Riau Province

Abstract

This study investigates the relationship between inflation, economic growth, and income inequality, focusing
on the Riau province. This research uses panel data from 12 districts / cities in Riau province with the period 2018-2022
and uses the granger causality test with EViews 13 software. The findings reveal no causal relationship between inflation
and income inequality during the observed period, indicating that fluctuations in inflation rates do not predict changes in
income inequality, nor vice versa. This conclusion highlights the significance of government policy, economic structure,
education, and labor force participation over inflation. While some studies suggest that moderate inflation may reduce
inequality by increasing the value of assets held by lower-income groups, this effect is context-dependent. Furthermore,
the analysis of economic growth reveals a complex relationship with income inequality, where the Granger causality test
shows no predictive link, especially in developing nations where growth benefits often favor high-income groups.
Although some research identifies a causal relationship under specific circumstances, the overall implication is that
targeted policy interventions addressing labor market dynamics and redistribution are essential for mitigating income
inequality, rather than relying solely on economic growth. The study emphasizes the need for context-specific approaches
to understand and address income inequality effectively.