Globalization: How the New Shift of Power Is Affecting Inflation

Because of globalization, manufacturers must pay increasing prices paid for raw goods like oil or minerals, and consumers discover dropping prices for products on store shelves. This analysis of the International Monetary Fund’s “World Economic Outlook” suggests that ten years ago, developed countries provided the impetus for trade, but the emerging economies of India, China and Eastern Europe now extend substantial influence as well. Trade includes more developing countries, thus delivering benefits to a larger share of the world’s population. Globalization does not eliminate inflation, but does affect relative prices, particularly for sectors exposed to international competition. Increasing prices for commodities could yet contribute to inflation, warns the IMF. “So the pressure remains on countries to figure out things they can do that other countries cannot do just as well on much lower wages,” writes author Hamish McRae. – YaleGlobal