Imported Inflation

10 Key excerpts on "Imported Inflation"

• 

  eBook - PDF

  Trading Economics

  A Guide to Economic Statistics for Practitioners and Students

  • Trevor Williams, Victoria Turton(Authors)
  • 2014(Publication Date)
  • Wiley

    (Publisher)

  (We discuss money supply further in Chapter 5.) Inflation can be thought of as being derived from the costs of produc-ing domestic goods and services and the imported prices of goods and services. In fact the RPI is split into goods prices and services prices, and includes estimates of imported goods. Domestic costs can be mea-sured through the GDP deflator, which does not include imported goods prices. It can be broken down into broad categories such as profits and rents (40 per cent) and wages (about 60 per cent). Import prices are 102 Trading Economics –3 –2 –1 0 1 2 3 4 5 6 7 2012 2010 2008 2006 2004 2002 2000 1998 CPI: Services % yr CPI: Goods Total CPI Figure 4.3 Changes in goods prices explain overall UK price inflation. Source: ONS, McFadden. paid on the basis of the currency that the goods originate from and so the value of the pound will vary between these currencies and so will impact the price of those inputs. These goods can rise or fall in price for other reasons (such as crop failure or a rise in demand or costs), of course, but the change in the pound will also influence domestic price changes. A rise in the pound could push down imported prices; a fall will push prices up. Figure 4.3 shows that goods prices explain why UK consumer price inflation was so low between 1998 and 2007. It seems it was not about monetary policy, but the effect of global economic competition stem-ming from the inclusion of China and India, which drove down internal goods prices. Oil prices played a role, as did services goods prices and a strong sterling exchange rate. The latter, in particular, would have pushed down imported price inflation. But this means that to understand UK inflation you do have to look at the detail of the inflation data, particularly goods price inflation.

  Sign up to read

  Learn more about book
• 

  eBook - PDF

  Law and Inflation

  • Keith S. Rosenn(Author)
  • 2015(Publication Date)
  • University of Pennsylvania Press

    (Publisher)

  INFLATION'S CAUSES AND CURES The term inflation is often used loosely in English to mean anything from pomposity to increases in money, income, and profits. 1 For the pur-poses of this book, inflation is used to refer either to a sustained rise in an economy's general level of prices or to a corresponding fall in the domestic purchasing power of an economy's currency. This working definition im-plies that inflation is a dynamic process in which the aggregate level of prices is moving upward over time while the purchasing power of money is in corresponding decline. It does not mean that all prices are moving upward uniformly, nor even that all prices are moving upward. It does mean that an economy is undergoing inflation when it presently costs more to purchase a representative sample of goods than it cost in the past. Inflation and its opposite, deflation, describe changes in a nation's internal price levels or its currency's domestic purchasing power. Changes in a currency's external purchasing power occur through adjust-ments in the foreign exchange rate. When the value of country A's cur-rency declines relative to the currency of country B, there has been a devaluation of country A's currency. Correspondingly, there has been an upward revaluation in country B's currency relative to country A. In com-mon parlance references to changes in internal and external purchasing power of a currency are frequently commingled; it is not uncommon to find courts confusingly referring to devaluation when they really mean depreciation in domestic purchasing power. 2 In the long run, countries experiencing inflation rates higher than those of customary trading part-ners will be forced to devalue; however, in the short run, it is frequently possible for countries to maintain the same exchange rate despite sub-stantial domestic inflation, or to devalue by less than the inflation rate differential.

  Sign up to read

  Learn more about book
• 

  eBook - PDF

  Exchange Rate Alignments

  • J. Mills(Author)
  • 2012(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  There is much evidence that the problems with inflation are more diverse and more manageable than is often recognised. Devaluation and the price level Those who believe that exchange-rate changes will affect prices are right in at least one sense. Any parity reduction is bound to exert upward pressure on the costs of all imported goods and services in the devaluing country. While the prices measured in the domestic currency of both imports and exports will almost certainly rise, the tendency for import costs to increase faster than export prices may worsen the terms of trade. In this sense, too, there is a direct cost to the economy. Furthermore, there is no value in a policy of depreciation unless it makes imports more expensive rela- tive to home market production. A major objective has to be to price out some imports by making it relatively cheaper than it was previously to produce locally rather than in other countries. It follows that without price increases for imported goods and serv- ices, there will be no new bias towards production from domestic output. 46 Exchange Rate Alignments The evidence presented in Table 3.1, however, indicates that other factors have to be taken into account. If, as is commonly supposed, only import prices were significant, then the figures in the table would show increasing inflation and declining living standards after a depreciation and not, generally speaking, the opposite. How then are the figures in the table to be explained? The answer is that devaluation’s impact on the price level is more complicated than is often recognised. Many effects are disinflationary rather than the reverse and tend to increase national income rather than reduce it. Obviously, the more exposed an economy is to foreign trade, the greater the immediate impact of exchange-rate changes on living standards and the price level.

  Sign up to read

  Learn more about book
• 

  No longer available |Learn more

  Inflation

  • (Author)
  • 2014(Publication Date)
  • Orange Apple

    (Publisher)

  ____________________ WORLD TECHNOLOGIES ____________________ Chapter- 1 Inflation In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a loss of real value in the internal medium of exchange and unit of account in the economy. A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the Consumer Price Index) over time. Inflation's effects on an economy are various and can be simultaneously positive and negative. Negative effects of inflation include a decrease in the real value of money and other monetary items over time, uncertainty over future inflation may discourage investment and savings, and high inflation may lead to shortages of goods if consumers begin hoarding out of concern that prices will increase in the future. Positive effects include ensuring central banks can adjust nominal interest rates (intended to mitigate recessions), and encouraging investment in non-monetary capital projects. Economists generally agree that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply. Views on which factors determine low to moderate rates of inflation are more varied. Low or moderate inflation may be attributed to fluctuations in real demand for goods and services, or changes in available supplies such as during scarcities, as well as to growth in the money supply. However, the consensus view is that a long sustained period of inflation is caused by money supply growing faster than the rate of economic growth. Today, most mainstream economists favor a low steady rate of inflation.

  Sign up to read

  Learn more about book
• 

  eBook - ePub

  World Economic Outlook, April 2006 : Globalization and Inflation

  • International Monetary Fund. Research Dept.(Author)
  • 2005(Publication Date)
  • INTERNATIONAL MONETARY FUND

    (Publisher)
• Over the medium term, the prevailing nominal anchor—such as the central bank’s inflation target—determines inflation. Therefore, the impact of globalization on inflation will be temporary unless it changes the overarching objectives of monetary policy. This is unlikely in industrial countries given the already low single-digit inflation targets (explicit or implicit). In emerging market and developing countries, however, greater openness appears to have been—and is likely to remain—an important factor behind the sustained improvement in inflation.
• The direct effect of globalization on inflation through import prices has in general been small in the industrial economies. That said, when global spare capacity increases—such as during the 1997–98 Asian financial crises and the 2001–02 global slowdown—import price declines have had sizable effects on inflation over one- to two-year periods, shaving more than 1 percentage point off actual inflation in some advanced economies. With low average inflation, such effects are economically significant. This lends support to the view that inflation targets should not be set too close to zero—otherwise shocks of this size could result in periods of deflation.
• Globalization has contributed to reducing the sensitivity of inflation to domestic capacity constraints in advanced economies over the past couple of decades—for example, through the impact on the labor markets and wages. As global economic developments have become increasingly important for domestic inflation, they will require closer monitoring by monetary policymakers in the years ahead.
• Globalization has had a significant effect on relative prices in industrial economies. Sectors that have become more exposed to foreign competition have seen the largest relative price declines in recent years. Nevertheless, globalization is not the only factor driving relative price changes. While openness has been important, particularly in low-tech and low-skill sectors, productivity growth has also contributed significantly to relative price changes, particularly in the high-tech manufacturing and services sectors. Indeed, while price increases in the manufacturing sector have consistently been below those in services, the decline in inflation in some services sectors since the mid-1990s has been more pronounced, contributing as much to the decline in overall producer price inflation as the manufacturing sector.