Globalization and Inflation

Globalization and Inflation go together for either the increase or decrease in globalization effects the rate of inflation. Inflation means the sustained increase in the levels of price for some set of services and goods in an economy over a time period. An increase in inflation rate means that the people have to pay more for services and goods.

Globalization means the dismantling of trade barriers between nations and also the integration of the economies of the nations through financial flow, trade in goods and services, and corporate investments between nations. Globalization has started from the 1970s and 1980s but picked up speed in the early 1990s due to the rapid progress that has been made in the area of technology especially in transport and communications. In the early 1980s the rate of inflation was around 9% but the progress of globalization helped to reduce the rate of inflation and in the 1990s it came down to an average of 2-3%.

The various beneficial effects of Globalization on Inflation are that it has been seen that globalization has helped to keep down the rate of inflation in the last 2 decades. This has happened due to the fact that the more the nations are globalized the more they tend to follow the policies that achieve greater growth in the economic sector, higher income, and faster economic freedom and all this leads to lower rate of inflation. Also, the positive effects of Globalization on Inflation have been that it has helped to make the inflation fluctuations less volatile.

Further the beneficial effects of Globalization on Inflation have been that it has helped many emerging market economies such as India and Latin America to stabilize their rate of inflation. This happened due to the fact that globalization has increased outsourcing of work to developing countries such as India. Also due to globalization foreign investments entered a nation, the domestic companies in order to compete with foreign goods had to reduce the price of their products and this also helped in reducing the rate of inflation.

The various negative effects of Globalization on Inflation are that it has been observed that from 2004, the rate of inflation has started to increase due to globalization. This has happened for although at the beginning of globalization developed countries started outsourcing their work to developing countries so that their work would be done in very less cost and this helped to reduce the rate of inflation in these countries. But with the progress of time the cost of production in developing countries has also increased and so the developed countries cannot have their goods manufactured at low costs any more. And this has resulted in the rate of inflation to increase in recent years. Thus this shows that Globalization and Inflation flow together and that globalization has influenced inflation a great deal.

Globalization and Inflation thus as seen are interconnected. The effects of Globalization on Inflation have been positive as well as negative. But the governments of the nations must make sure that globalization should have only beneficial effects on inflation. For any increase in inflation directly affects the people for they have to pay more for the goods and services that they purchase.