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Inflation: What Are the Main External Causes of Inflation?

Level:
AS, A-Level, IB
Board:
AQA, Edexcel, OCR, IB, Eduqas, WJEC

Last updated 8 Jan 2023

External causes of inflation refer to factors that originate outside the economy and affect the overall level of prices.

Some examples of external causes of inflation include:

  1. Changes in the price of imported goods: If the price of goods that are imported into a country increases, this can lead to higher prices for those goods in the domestic market, which can contribute to inflation.
  2. Changes in exchange rates: If the value of a country's currency falls relative to other currencies, this can make imported goods more expensive, which can contribute to inflation.
  3. Changes in commodity prices: If the prices of commodities such as oil or food increase, this can lead to higher prices for goods and services that use those commodities as inputs, which can contribute to inflation.
  4. Changes in global economic conditions: Global economic conditions can also affect the domestic inflation rate. For example, if there is a global economic recession, this can lead to lower demand and lower prices, which can reduce inflation. Conversely, if there is a global economic boom, this can lead to higher demand and higher prices, which can increase inflation.

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