Inverse Relationship Definition

There can be certain components in the economic functions of financial markets that are interconnected.

For example - If we see massive government spending on social programs where the citizens are compensated better, they have more money to spend.

Similarly, when unemployment increases, consumer spending decreases as people have less disposable income.

If the interest rate goes up, the consumer spends less and is more interested in saving.

Alternatively, firms may face higher compensation costs which can be passed on to the consumer as inflation. 

When two or more variables are used in regression analysis, and they are related in the manner that an alteration in one can create opposite movement in the value of others –it is called inverse or negative correlation.

One of the most common examples of such a relation is interest rates and consumer spending or the flow of commodities.