Role of currency movements in global markets

Published in the Financial Times, 16 March 2014

Sir,

Martin Wolf’s excellent article “The spectre of eurozone deflation” (March 12) leaves out one important aspect of the causes of inflation and deflation in today’s globalised markets, namely the role of currency movements. The euro has been appreciating against the dollar for some time now and making a large number of dollar-denominated imports like oil, other commodities and food stuff cheaper and with that lowering price indexes. That in itself is hardly worrying.

A parallel to this is the reducing inflation in the UK. When sterling devalued in the immediate aftermath of the 2007-08 recession, it did not do much for exports, as was hoped for, but led to soaring inflation, which is only now falling with sterling appreciating again around 10 per cent against a basket of currencies.

It is important to understand that the former drivers of inflation, namely demand increases through wage rises leading to wage/price spirals, no longer exist. Bank of England governor Mark Carney is no doubt aware of this – I hope.

Bob Bischof, Vice-President, German-British Chamber of Industry & Commerce, UK

Author: Bob Bischof

German Robert (Bob) Bischof has lived and worked in Britain for 40 years. He is convinced that the two countries can gain much by learning from each other. Well-known for his outspoken comments on economic, political and industrial issues concerning Britain and Germany, he is a regular contributor to a range of newspapers and other publications, including the Financial Times and other national papers. View all posts by Bob Bischof