Friday, January 31, 2014
Recently, a number of emerging market currencies, led by the Argentine peso. but also including for example the South African rand, the Turkish lira and the Russian ruble have dropped sharply in value against the U.S. dollar, the euro and most other rich country currencies. The effect of this will be both inflationary and deflationary.
It will be inflationary to the emerging economies as the drop in their currencies will push up import prices and local currency commodity prices, while raising nominal income for exporters. It will be deflationary for us, as the lower emerging economy currencies will lower our import prices and commodity prices for us, while reducing nominal income for exporters.
This is similar to how "Abenomics" while achieving its goal of ending price deflation and creating inflation, has had a deflationary effect on the rest of the world.