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If you buy everything from China (which is most of the stuff at Wal-Mart) and the dollar goes down versus the yuan, the stuff will probably get more expensive. If you travel to another country, everything will cost more than it did before. A lower dollar makes foreign oil more expensive, which increases transportation costs in the US, which makes domestic products more expensive so it does have an impact on domestic inflation and not just imports.
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OK, but we weren't talking about the dollar's exchange rate. There is very significant price inflation seen domestically, most obviously in the price of gasoline, but also readily seen in such necessities as milk, houses, energy, education, etc. Prices are going up. We have inflation. Trying to play with definitions does not change that fact.
My point is people seem to be confusing inflation with exchange rates. Talk of declining value of the dollar abroad certainly implies that as well. Zendell's statement is somewhat correct; if the dollar depreciates relative to other currencies, then foreign stuff becomes more expensive. However, just because foreign stuff is now more expensive because the currency depreciated does not mean it is inflation in those goods. You try and argue there is some cost-push reason for the rise in price of foreign goods (oil in the 1970s for example is considered by some schools to be acceptable since there was "no alternative available"); however, mere changes in the exchange rate does not satisfy this. Unfortunately, the cost-push theory isn't totally accepted as it is the flaw that if the money supply is constant, increases in the cost of a good or service will decrease the money available for other goods and services, and therefore the price of some those goods will fall and offset the rise in price of those goods whose prices have increased.
Again, higher domestic inflation can cause the exchange rate to "fall" thus causing foreign goods to be more expensive, however, the inflation occurred first in and was caused by the domestic country, so you can't attribute the declining value of the dollar to inflation (because the reverse is true, rising inflation caused the dollar to decline).
I never denied inflation exists; ceteris paribus, if the price of milk rises every year, then there is probably inflation in the price of milk. Gasoline is a more tricky one preciously because you can't easily compare it ceteris paribus because of the increased demand for oil (China, India, etc) as well as oil speculators (who cause the price of oil to be adjusted on what is believed to be future supply, which is useful actually as it prevents huge spikes), and increased supply of oil. A demand increase will increase price, but that increase in price is not necessarily inflationary, it is just supply and demand (if you want to say any change in supply and demand is inflationary, I suppose you could, but it'd be kind of silly). Of course, inflation in the price of certainly does occur, but you can't chalk up all the increased price of oil due to inflation.
04 Apr 2008, 7:22 am
