International price levels and global inflation

Article type: Research Article

Authors: Ward, Michael^{; 1}

Affiliations: 2A Waddelow Rd. Waterbeach, Cambridge CB59LA, UK

Note: [1] An earlier version of this paper was presented at the Joint World Bank-OECD Seminar on Purchasing Power Parities, Washington D.C., January 30–February 2, 2001.

Abstract: Over at least the past 50 years, the inhabitants of every country have seen the value of their money depreciate. The purchasing power of a unit value of their national currencies has progressively declined, in some cases precipitously. In many cases the increases in prices had very little connection with conventional theoretical explanations of domestic imbalance between demand and supply. Global inflation has been a universal phenomenon and it has occurred for transnational, international and national reasons. Rising price levels are associated with economic progress but they are also the outcome of the interaction of other international institutional and financial variables such as indebtedness and exchange rate volatility which contribute systemically to a core upward trend in inflation. The paper discusses some of the current factors that may lie at the root of a potential new bout of global inflation [or ‘stagflation’] and reviews the various methods that have been adopted by different organizations, including the Bretton Woods institutions, to approximate an international inflation measure. These indexes are seen to be deficient and incomplete in a number of respects and the paper concludes that a purchasing power parity method that uses international price weights throughout is the only satisfactory means to measure this as yet unidentified phenomenon.

DOI: 10.3233/SJU-2001-18105

Journal: Statistical Journal of the United Nations Economic Commission for Europe, vol. 18, no. 1, pp. 65-75, 2001