I am trying to learn the Principal Component analysis. For that, I have pulled the yearly GDP and Inflation data and calculated the YOY Change in Inflation and GDP data to use in the PCA analysis.
My initial analysis showed that there is a weak correlation between GDP and Inflation which is around 19% but post PCA analysis, I got a -77% correlation between GDP and PCA1 and Inflation and PCA1.
Here my question is
What is Composite Index in PCA? Is it PCA1 and PCA2 in my case? if not, how to calculate the composite index (Inflation+gdp) and forecast the composite index for a future period.
Calculation of Change in Composite Index and Identify the scalar for future period calculation.