Inflation And Globalization

Many economists hold different views about inflation and globalization. There are various schools of thought. With regard to inflation and globalization, some economists say that globalization encourages inflation, while few others express their view on the contrary. Globalization has impacted inflation in different ways. Globalization basically means the opening up of an economy.

Whenever, the tariff barriers are lowered and trade barriers are removed, it means that goods from other countries can be availed by residents of another country. There is extensive exchange of goods and services. This is done by lowering the tariff and bringing down other obstacles. What is to be seen next, is the role played by inflation and globalization in the economy of a country.

Inflation and globalization- Different views:

Domestic inflation is impacted by many global factors. Owing to trade expansion there might be domestic inflation. This happens because trade expansion depends to a large extent on cost of goods, which are imported. Another factor, which is taken into consideration is competitive pressure brought forth by globalization. The cost of some goods are internationally integrated. Pressures created for utilizing resources in economies of foreign countries could influence domestic inflation.

Few economists feel that globalization does not affect the rate of inflation. This is because the changes, which globalization has brought forth affect relative costs of services and goods. On the other hand, there are yet others, who feel inflation is after all the change in the overall price level. This can be determined by monetary policies. This (monetary policies affecting inflation) holds true for long term commitments. With regard to short or medium run commitments, it may not hold true.