price level : global influences

Question 2

why do commodity prices play a crucial role in imported inflation

Answer 2

as they impact the cost of raw materials and goods purchased from abroad

Question 3

what are the 2 common sources of imported inflation?

Answer 3

food
oil supply

Question 4

oil prices

Answer 4

The UK heavily relies on imported oil for energy
When global oil prices rise, it increases costs for the UK affecting various sectors such as transportation, manufacturing, and energy production
This, in turn, contributes to import inflation

Question 5

food prices

Answer 5

The UK imports a significant portion of its food and changes in global commodity prices, such as those for wheat, soybeans, or livestock, directly influence the cost of imported food products
Eg. Global wheat prices increased in 2023 due to Ukraine-Russia geopolitical conflict
This resulted in higher costs for imported wheat-based products in the UK

Question 6

How Changes in Other Economies can Affect inflation in the UK - exchange rates

Answer 6

explanation -Changes in exchange rates between the UK and other economies can affect the cost of imports and exports

impact on inflation - A depreciation of the UK pound could lead to higher import prices, increasing the price of imported goods for UK consumers and raising inflation
Conversely, a strengthening pound could lower import prices, dampening inflationary pressures

Question 7

How Changes in Other Economies can Affect inflation in the UK - economic growth in trading partners

Answer 7

explanation - Economic growth in other economies can affect demand for UK exports

impact on inflation - Strong economic growth in major trading partners may increase demand for UK exports, contributing to inflation in the UK
Conversely, weak economic growth in trading partners may reduce demand for UK exports, leading to lower prices and reducing inflation

Question 8

How Changes in Other Economies can Affect inflation in the UK - Global shocks

Answer 8

explanation - Events like wars, political instability, or natural disasters in other economies can lead to global shocks

impact on inflation - Global shocks tend to increase inflationary pressures
Periods of global stability and peace tend to dampen inflationary pressures