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[monesh]

Hey could someone please tell me what is the link between globalisation & inflation?

thanks in advance.

 

[gibbo153]

a few different links.

the greater effect of the international business cycle will sometimes bring 'peak' or 'boom' periods where supply constraints cannot satisfy demand, making the demand unsustainable, which causes inflation to rise

when fund managers take funds out of a country for portfolio investment in foreign financial markets, it devalues that nation's currency, causing imports to be more expensive and inflation to rise

external shocks to an economy like the oil crises in 73 and 79 cause energy prices to rise, leading to inflation and slower economic growth.

if governments institute protectionist policies to protect their industries from international competition, the higher prices that result will cause inflation to rise.

 

[gnrlies]

a few different links.

the greater effect of the international business cycle will sometimes bring 'peak' or 'boom' periods where supply constraints cannot satisfy demand, making the demand unsustainable, which causes inflation to rise

when fund managers take funds out of a country for portfolio investment in foreign financial markets, it devalues that nation's currency, causing imports to be more expensive and inflation to rise

external shocks to an economy like the oil crises in 73 and 79 cause energy prices to rise, leading to inflation and slower economic growth.

if governments institute protectionist policies to protect their industries from international competition, the higher prices that result will cause inflation to rise.

I'd like to take some of your points and rework them a little if you don't mind.

I think you can generally classify the effects with reference to the different types of inflation.

I.e.

Demand Pull - This can occur due to IBC fluctuations as you mentioned

Cost Push - This can result as domestic market equilibriums are replaced by global market equilibriums which may in some case push input costs up for domestic produces. In other words corn might be a relatively cheap input for popcorn in Australia, however with the onset of globalisation, the emergence of biofuels has increased demand overseas which has meant that the price of popcorn has risen in Australia.

Imported Inflation - Oil Shocks etc

I just want to add one more impact that you did not mention.

More than anything else, the biggest impact of globalisation on inflation has been the emergence of china, and other newly industrialising economies that has significantly lowered the cost of manufactured goods. This has lowered inflation substantially.

 

[gibbo153]

it is an honour to have a mod collaborate on my answer good sir