speakup, Can u tell me why costs have have been spiralling upwards in SG? it is because we are paying to fuel the inflation.Yet, internal factors such as government policy and probable lack of strong bite from consumer advocacy groups play their parts too. The hike in GST from 5% to 7%, which is inherently regressive, has had an effect on the raising of prices of raw imported materials, from noodles to minced meat to vegetables. In addition, the rent of the foodcourt stalls might have increased due to the increase cost in providing air-condition, cable television and dish washing in the foodcourt due to the increase in GST. This means that your favorite fish ball noodles in the food court might have ramped up its prices to 3.50 dollars to 4 dollars due to the rise of GST, both directly and indirectly.
Once again let me reiterate that I DO NOT DENY THE EXISTENCE OF INFLATION. Im just saying that your earlier reasoning about monetary policy and appreciation about currency is wrong! Yes when you tax prices go up as it affects the cost of production resulting in a fall in supply and higher prices and thus inflation. I have no problem with that!
Originally posted by speakup-:Once again let me reiterate that I DO NOT DENY THE EXISTENCE OF INFLATION. Im just saying that your earlier reasoning about monetary policy and appreciation about currency is wrong! Yes when you tax prices go up as it affects the cost of production resulting in a fall in supply and higher prices and thus inflation. I have no problem with that!
come now, explain to me if regulation and deregulation of the currency is not costing inflation , then why are prices up.
Under a fixed exchange rate currency regime, a country's currency is tied in value to another single currency or to a basket of other currencies (or sometimes to another measure of value, such as gold). A fixed exchange rate is usually used to stabilize the value of a currency, vis-a-vis the currency it is pegged to. It can also be used as a means to control inflation. However, as the value of the reference currency rises and falls, so does the currency pegged to it. This essentially means that the inflation rate in the fixed exchange rate country is determined by the inflation rate of the country the currency is pegged to. In addition, a fixed exchange rate prevents a government from using domestic monetary policy in order to achieve macroeconomic stability.
Under the Bretton Woods agreement, most countries around the world had currencies that were fixed to the US dollar. This limited inflation in those countries, but also exposed them to the danger of speculative attacks. After the Bretton Woods agreement broke down in the early 1970s, countries gradually turned to floating exchange rates. However, in the later part of the 20th century, some countries reverted to a fixed exchange rate as part of an attempt to control inflation. This policy of using a fixed exchange rate to control inflation was used in many countries in South America in the later part of the 20th century (e.g. Argentina (1991-2002), Bolivia, Brazil, and Chile).
In certain situations, fixed exchange rates may be preferable for their greater stability. For example, the Asian financial crisis was improved by the fixed exchange rate of the Chinese renminbi, and the IMF and the World Bank now acknowledge that Malaysia's adoption of a peg to the US dollar in the aftermath of the same crisis was highly successful.
The reason why pegging controls inflation is because when my currency is peg to yours, when your currency up 10%, my currency ups 10% and the goods do not get costlier in real terms when i import from you! Once again i did not say currency manipulation does not cause inflation, it just doesnt work in the way you mention. Its as simple as depreciate = inflation, appreciate= prevent inflation.
However, as the value of the reference currency rises and falls, so does the currency pegged to it. This essentially means that the inflation rate in the fixed exchange rate country is determined by the inflation rate of the country the currency is pegged to. In addition, a fixed exchange rate prevents a government from using domestic monetary policy in order to achieve macroeconomic stability.
This part makes sense, but your application of the knowledge doesnt. At large yes the inflation would follow that of the country it is pegged to but it doesnt cause further inflation because trade between the two countries would not be affected in real terms. The problem would come when your currency falls along with the pegged currency while other currencies remain at the same value. Thus when you trade with other countries you are susceptible to imported inflation because your currency is now weaker, costs of production rise as imported materials are dearer in terms of your local currency.