Abstract: Achieving sustainable economic growth is a prioritized objective of any country. However the attainment of this priority is faced by obstacles, among which is inflation. The relationship between inflation and growth is a controversial one and it is only through research that this can be properly established. This study examined the relationship (causal relationship) between inflation and economic growth in Tanzania for the period 1974 -2019. The study has answered major question on the nature of relationship between inflation and Economic growth in Tanzania whereby have identified that there is negative relationship between inflation and Economic growth. The study used secondary data to analyze this phenomena .The study employed correlation analysis, Regression analysis, Granger causality, ECM and Diagnostic and parameter stability as econometric tools. From the findings, it was established that, economic growth is cointegrated with inflation, ,foreign direct investment and trade openness . The regression results shows that, there is a negative relationship between inflation and economic growth running from inflation to economic growth. Meanwhile, granger causality results shows negative causal relationship between inflation and Economic growth. The study recommends that, the Government should apply proper economic policy such as fiscal and monetary policy measures with an aim to control and restore inflation at acceptable levels in Tanzania.
Keywords: Economic growth, Inflation, foreign direct investment prospects