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Commodity Prices and the Dynamics of Inflation in Commodity‐Exporting Nations: Evidence from Australia and Canada*
Author(s) -
BLOCH HARRY,
DOCKERY A. MICHAEL,
SAPSFORD DAVID
Publication year - 2006
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/j.1475-4932.2006.00336.x
Subject(s) - commodity , boom , economics , inflation (cosmology) , monetary economics , exchange rate , commodity swap , price shock , contango , relative price , international economics , macroeconomics , market economy , financial economics , speculation , physics , environmental engineering , theoretical physics , engineering , futures contract
A commodity‐price boom is under way. What does this boom mean for inflation in countries with substantial net commodity exports? The answer depends on movements in commodity prices, changes in foreign exchange rates and the determinants of domestic price inflation. We estimate equations to provide indications of the strength of each of these forces for both Australia and Canada. The results show that world commodity prices move pro‐cyclically with world industrial production and that rates of change in commodity prices are directly related to domestic inflation in both countries. However, there is an offsetting impact of exchange‐rate changes, which is strong enough in the case of Australia, but not Canada, to substantially eliminate the inflationary impact of a commodity‐price boom.