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Can we conclude that 2 different countries have the same inflation rate if the value of currency in these 2 co?


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This entry was posted on Monday, June 29th, 2009 at 7:02 am and is filed under Currency Trading. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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3 Responses to “Can we conclude that 2 different countries have the same inflation rate if the value of currency in these 2 co?”

  1. Goofie Says:
    June 29th, 2009 at 7:02 am

    You don't finish your question, but the answer is theoretically YES. The concept of price parity index tells us this magic. If the price of Big Mac in India is the same as in the US, the value of the currency in theory will be the same. But it is not in reality because the countries will either underestimate or overestimate their own currency.

  2. Henry Hedgehog Says:
    June 29th, 2009 at 7:02 am

    The inflation rate is usually measured by a "basket of goods and services" — an index that reflects the average consumption patterns of the country. In the UK this is done by the CPI (and RPI).

    The consumption patterns in two countries are unlikely to be the same, so even if their currencies are locked together (or are in fact the same currency, e.g. the euro), it's unlikely that their measured inflation rates will be exactly the same.

    And the same goes even if you don't rely on indexes. For example, if Italians spend more of their income on pasta than Germans, and if there's a world pasta shortage so prices rise, inflation will be higher in Italy than in Germany, even though both countries use the euro.

    This is one of the problems with a common currency.

  3. Chuck Shui Says:
    June 29th, 2009 at 7:02 am

    I think the inflation is caused by the monetary phenomena as what Milton Friedman, the nobel prize winner in economics once said. As Uncle Sam keeps on printing dollars bills is estimated to be exceeded 90 trillion US dollars by the end of this year for supporting the Iraq and other wars, financial bail outs for auto industry, and to take over the toxic mortgages left by Fannie Mai and Freddie Mac and Country Wide.
    I think the inflation is much higher in the US to compare with China, the number one creditor of the US government. For instance, the daily necessities are much cheaper in China than the US, including Mcdonald fast food orders and Burger King. Money is just the medium for exchange and its value is determined by speculation and leverage of financial activities to control ups and downs of the values in the market.
    http://ca.search.yahoo.com/search?p=How%20the%20value%20of%20currency%20is%20determined
    http://wiki.answers.com/Q/What_is_the_main_cause_of_the_current_economic_crisis_in_the_US
    http://www.mises.org/store/Product2.aspx?ProductId=557&NOID=14

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