Commodity Prices and the Dynamics of Inflation in Commodity-exporting Nations: Evidence from Australia and Canada
A commodity price boom is under way. What does this boom mean for countries with substantial net commodity exports? In particular, can a commodity price boom be expected to increase inflationary pressure on the domestic economy?Because primary commodities are standardized and traded globally, pric...
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| Format: | Conference Paper |
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Economic Society of Australia
2005
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| Online Access: | https://editorialexpress.com/conference/ACE2005/program/ACE2005.html http://hdl.handle.net/20.500.11937/34341 |
| _version_ | 1848754196468203520 |
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| author | Bloch, Harry Dockery, Alfred Michael Sapsford, D. |
| author_facet | Bloch, Harry Dockery, Alfred Michael Sapsford, D. |
| author_sort | Bloch, Harry |
| building | Curtin Institutional Repository |
| collection | Online Access |
| description | A commodity price boom is under way. What does this boom mean for countries with substantial net commodity exports? In particular, can a commodity price boom be expected to increase inflationary pressure on the domestic economy?Because primary commodities are standardized and traded globally, price increases impact on all countries given the prevailing foreign exchange rates. This creates upward pressure on finished goods prices, as the direct costs of production, including raw material costs are marked up to determine finished goods prices. The behaviour of finished goods prices then depends on domestic movement in wage rates, labor productivity and price-cost margins.Both the Australian and Canadian dollars are viewed as "commodity currencies", implying co-movement of the exchange rate with the commodity prices. In particular, currency appreciation with rising commodity prices can offset the impact of global commodity prices on domestic raw material costs. Thus, an exchange-rate equation is included in our small structural model for inflation determination in Australia and Canada. The full model includes equations for the world price of primary commodities, the foreign exchange rate, the domestic price of finished goods and domestic industrial wages. We estimate this model using quarterly data covering 1960 through 2001. The results show evidence that the world commodity price boom increases inflation in both Australia and Canada, albeit with an influence that is moderated by the partially offsetting impact of exchange rate appreciations (depreciations) during commodity price booms (busts). |
| first_indexed | 2025-11-14T08:36:34Z |
| format | Conference Paper |
| id | curtin-20.500.11937-34341 |
| institution | Curtin University Malaysia |
| institution_category | Local University |
| last_indexed | 2025-11-14T08:36:34Z |
| publishDate | 2005 |
| publisher | Economic Society of Australia |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | curtin-20.500.11937-343412017-01-30T13:42:53Z Commodity Prices and the Dynamics of Inflation in Commodity-exporting Nations: Evidence from Australia and Canada Bloch, Harry Dockery, Alfred Michael Sapsford, D. A commodity price boom is under way. What does this boom mean for countries with substantial net commodity exports? In particular, can a commodity price boom be expected to increase inflationary pressure on the domestic economy?Because primary commodities are standardized and traded globally, price increases impact on all countries given the prevailing foreign exchange rates. This creates upward pressure on finished goods prices, as the direct costs of production, including raw material costs are marked up to determine finished goods prices. The behaviour of finished goods prices then depends on domestic movement in wage rates, labor productivity and price-cost margins.Both the Australian and Canadian dollars are viewed as "commodity currencies", implying co-movement of the exchange rate with the commodity prices. In particular, currency appreciation with rising commodity prices can offset the impact of global commodity prices on domestic raw material costs. Thus, an exchange-rate equation is included in our small structural model for inflation determination in Australia and Canada. The full model includes equations for the world price of primary commodities, the foreign exchange rate, the domestic price of finished goods and domestic industrial wages. We estimate this model using quarterly data covering 1960 through 2001. The results show evidence that the world commodity price boom increases inflation in both Australia and Canada, albeit with an influence that is moderated by the partially offsetting impact of exchange rate appreciations (depreciations) during commodity price booms (busts). 2005 Conference Paper http://hdl.handle.net/20.500.11937/34341 https://editorialexpress.com/conference/ACE2005/program/ACE2005.html Economic Society of Australia fulltext |
| spellingShingle | Bloch, Harry Dockery, Alfred Michael Sapsford, D. Commodity Prices and the Dynamics of Inflation in Commodity-exporting Nations: Evidence from Australia and Canada |
| title | Commodity Prices and the Dynamics of Inflation in Commodity-exporting Nations: Evidence from Australia and Canada |
| title_full | Commodity Prices and the Dynamics of Inflation in Commodity-exporting Nations: Evidence from Australia and Canada |
| title_fullStr | Commodity Prices and the Dynamics of Inflation in Commodity-exporting Nations: Evidence from Australia and Canada |
| title_full_unstemmed | Commodity Prices and the Dynamics of Inflation in Commodity-exporting Nations: Evidence from Australia and Canada |
| title_short | Commodity Prices and the Dynamics of Inflation in Commodity-exporting Nations: Evidence from Australia and Canada |
| title_sort | commodity prices and the dynamics of inflation in commodity-exporting nations: evidence from australia and canada |
| url | https://editorialexpress.com/conference/ACE2005/program/ACE2005.html http://hdl.handle.net/20.500.11937/34341 |