Imported inflation
In economics in the broader sense, imported inflation is any inflation whose causes lie in the external relations of an economy . In a narrower sense imported inflation are due to a high price level growth in other countries caused by imports are transferred to the domestic market.
General
Otmar Emminger , President of the Bundesbank from 1977 to 1979, wrote in his memoir that he first used the term publicly in June 1956 and that this “formula soon became common parlance”. Older literature erroneously attributed the term to Wilhelm Röpke , from the end of 1956.
Imported inflation trigger
Imported inflation due to inflation abroad
The starting point for the considerations is inflation occurring abroad. Domestic companies are now planning to sell more of their goods and services abroad, as they can obtain higher prices there . As a result, domestic exports to other countries are increasing , while imports from abroad are decreasing.
Inflation is imported domestically in three ways. All three transmission channels are based on fixed exchange rates between home and abroad:
First, domestic companies receive foreign currency for exports. If the exchange rate between the two countries is fixed, the central bank has to exchange the accumulated foreign currency at the existing rate in the domestic currency , which increases the domestic money supply . Since this increased amount of money is not offset by a higher supply of real goods, according to the quantity equation, domestic prices are now also rising . Inflation is imported from abroad.
A second transmission channel of foreign inflation to the domestic market comes from the imports themselves: If the domestic country imports goods with a low price elasticity of demand (i.e. goods that are of elementary importance for the national economy and cannot be substituted) from foreign countries affected by the inflation - e.g. crude oil), it is likely that higher import prices will affect the domestic price level. If, for example, wage increases are enforced because of higher oil prices , a wage-price spiral can also lead to higher domestic inflation.
Thirdly, the increased export of goods usually causes a short-term shortage of these goods domestically, which also increases their domestic price. This effect occurs particularly strongly and in the long term if only a certain quantity can be produced or if the marginal costs of additional production would be higher than the domestic price.
Imported inflation due to currency devaluations
The starting point of imported inflation can also be a continuous devaluation of the domestic currency , for example due to a domestic loss of credibility on foreign financial markets .
The continuous devaluation leads to rising import prices (and thus to a decline in the terms of trade ), which have an impact on the domestic price level through the channels described above . However, there is no imported inflation in the original sense, since inflation does not necessarily have to prevail abroad.
Measures against imported inflation
There is no means that fundamentally prevents the risk of inflation imports. A measure against inflation imported from abroad, which is mainly practiced in emerging and developing countries, is the monetary policy strategy of exchange rate control . The central bank attaches such great importance to imported goods in the context of domestic pricing that it aligns its entire monetary policy with this mechanism. The popularity of fixed exchange rates in developing countries can be attributed to the phenomenon of the fear of floating .
Fixed exchange rates, for example, are an effective measure against imported inflation caused by currency devaluations, but it is precisely fixed exchange rate regimes that make imported inflation in the narrower sense possible. In the case of flexible exchange rates, exporters would also like to exchange the foreign currency for the domestic currency. However, there is an oversupply of the foreign currency on the foreign exchange market, so that the rate of the foreign currency against the domestic currency falls. The devaluation of the foreign currency compensates for the rise in prices abroad. In this case, inflation abroad is not imported.
With the introduction of the European Economic and Monetary Union (EMU), there was no longer any possibility of hedging against inflation imported from member countries. To compensate for this, the Maastricht criteria were introduced, according to which a country may only introduce the euro if its inflation rate does not exceed the average inflation rate of the three most stable member states by more than 1.5 percent. However, there are no mandatory convergence criteria for the member states already in the euro system, so that in practice there may be significantly larger deviations in inflation rates.
On the occasion of the euro crisis and the Greek sovereign debt crisis , public discussions began on how euro countries could reduce their net new debt. Aid from the ESM or the EFSF should be linked to conditions (see also debt brake ).
credentials
- ^ Otmar Emminger, DM, Dollar, Currency Crises , 1986, p. 79
- ↑ Inflation rates (consumer prices) in the European Union ( page no longer available , search in web archives ) Info: The link was automatically marked as defective. Please check the link according to the instructions and then remove this notice.
