Replies (300 words total – 100 words minimum, per reply)
BUSI 604
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Additionally, you will reply to a minimum of 3 other classmates’ threads. Thus, you will have
submitted substantive written responses to a minimum of 3 other classmates’ threads.
What is Substantive Interaction?
The School of Business is committed to the collaborative learning model. In this course,
collaborative learning requires each student to read and spend time reflecting on other’s
postings, and then respond in a substantive manner to the postings of others. In composing
substantive responses, you can do several things, such as:
o compare/contrast the findings of others with your research;
o compare how the findings of others relate and add to the concepts learned in the
required readings; and/or
o share additional empirical knowledge regarding global business — or international
experiences you may have had — relative to the postings of others.
The collaborative learning model requires substantive interaction between students on a
weekly basis. Consider the Discussion as equivalent to being in a class, thus maintain
professional communication standards at all times (no “IM” shorthand or informal jargon,
please).
DISCUSSION POST:Inflation
Key Term and Why You Are Interested in It
In the assigned reading for this module from International Business with Biblical Worldview, there were numerous terms of interest pertaining to global monetary systems. From the selections, I chose to conduct further research on the term inflation due to its current economic relevance and global effects. In my limited business experience, I know very little concerning inflation beyond the obvious increased costs of goods and services. As the United States currently faces high levels of inflation which directly results in impacts to my personal life, having a greater understanding of the term and its implications is beneficial. The impacts of significant inflation are felt by nearly everyone throughout the country, leading to many consumers suffering from financial strains and hardships. When considering the causes of inflation, the Bible teaches in Proverbs 11:1, “A false balance is abomination to the Lord: but a just weight is his delight” (King James Bible, 1769/2017). The country as a whole must be aware of the courses of action that result in increased inflation, and take steps to minimize or reduce its negative impacts on consumers.
Explanation of the Key Term
In examination of global financial markets, having a broad understanding of the many aspects of inflation is crucial to successful international business. A country’s inflation rate can be effected by numerous different variables, however increased spending which amplifies demand of products, as well as increases currency supply are major contributing factors (Satterlee, 2018). According to Satterlee (2018), “inflation essentially decreases a consumer’s purchasing power by making goods and services more expensive, which leads to wage price spirals because too much money is circulating” (p. 136). This increase in money supply circulation can occur from ease of ability to obtain money from financial institutions due to low interest rates, as well as governmental funding, and lower unemployment rates. In regard to borrowers, “the increased capital that borrowers acquire from financial institutions supplements disposable income, which encourages increased spending” (Satterlee, 2018, p. 136). This additional spending has direct implications on demand of products, which has a domino effect on all facets of providing the good or service which drives up costs to consumers. Feldkircher et al. (2019), found “in most countries actual inflation gradually declines and dies out after 8-16 months” (p. 228). When facing these periods of increased inflation, individuals and businesses alike must make adjustments to their overall financial decision-making to accommodate the increasing costs of goods to maintain their success and survival.
Major Article Summary
In the article Global inflation dynamics and inflation expectations, authors Feldkircher and Siklos completed a study in which they examined “the dynamics of global inflation and short-run inflation expectations” (Feldkircher et al., 2019, p. 238). In their research the authors studied 42 varying country economies over a 16 year period and found inflation expectations have a significant impact on actual inflation (Feldkircher et al., 2019). As a result of their study, Feldkircher et al. (2019) identified “three shocks that can lead to inflationary pressure, namely a domestic aggregate demand shock, a domestic aggregate supply shock and a global acceleration of oil price inflation” (p. 238). Of the three, oil price increases have the most significant impact on increased inflation in the countries studied, and the effects are felt for a much greater timeframe. Therefore, as governments seek to control and stabilize standard inflation levels, they must pay close attention to the impacts of oil prices, and consider its effects on their inflation forecasting and planning.
When considering international business, the author’s indicated “globalization in both the trading of good and services and in finance is often also touted as a critical driver of the international component that influences domestic inflation rates” (Feldkircher et al., 2019, p. 218). The spillover of inflation effects from one country to another has direct influence on the inflation expectations of the connected country. To further expound, Feldkircher at al. (2019) declares the effects of both actual and expected inflation in a select country or region has a global impact on countries in which they are connected for business exchanges, thus “international linkages should be taken into account when analyzing inflation expectations at the global level” (p. 224). In analyzation of the data collected in the study, it is apparent that more advanced economy countries have lower expectations of levels of inflation, whereas smaller or developing economies suffer more significantly due to their dependence on others (Feldkircher et al., 2019).
Discussion
The cited work Global inflation dynamics and inflation expectations relates directly to the topic of inflation and global monetary systems. In the article, the authors studied and examined the causes and effects of inflation and found that demand, supply, and oil price increases have the most significant impacts on inflation. As previously referenced from Satterlee (2018) in the term explanation, the increase in spending creates larger demand for goods and services, which was identified as a key driver of inflation in the cited article study completed by Feldkircher et al. (2019). In international business environments, a country’s level of inflation must be considered along with any relevant data which outlines expected future fluctuations. In situations where inflation exceeds normal increases, a country’s planned response and estimated recovery to normal levels is crucial in business planning. As noted by Feldkircher et al. (2019), “the effects of demand and supply shocks are short-lived for most countries,” and “when global oil price inflation accelerates, effects on inflation and expectations are often more pronounced and long-lasting” (p. 217). Proper planning can make the difference in organizational or individual success by assisting with reducing financial risks associated with international business. Through analysis of the module content and cited article, inflation will continue accelerating until demand is controlled by the reduction in money supply.
While researching inflation, there was an overwhelming amount of information and articles outlining various aspects and considerations of the term. In the cited article Global inflation dynamics and inflation expectations, the authors focused on the causes of global inflation and identified the three main drivers. In Exploring international differences in inflation dynamics, Ahmad et al. (2017) completed a study of 135 countries spanning a term of 20 years examining persistence of inflation. The results of their study confirm the findings of the cited article in that developed and advanced countries with stronger economies have lower volatility in inflation and reduced recovery times (Ahmad et al., 2017). In Long-term inflation expectations and inflation dynamics, Pétursson (2020) studied Iceland’s extended period of low inflation since their start of inflation targeting in 2001. In his study, Pétursson (2020) found a key factor in Iceland’s stable inflation was the low global inflation that resulted in lower import costs. This reinforces the views and findings of Feldkircher et al. (2019) that inflation spillover has direct influence on other countries who participate in trade. These lower levels of inflation in the time period also allowed for lower inflation expectations which limited the overall increases.
In the article Inflation and exchange rate pass-through, Ha et al. (2020) examines an aspect of inflation dealing with exchange rates effecting costs of goods and services for consumers. Ultimately, fluctuations in exchange rates affect prices which can lead to inflation. Through their study, the authors found inflation can be stabilized “by using the exchange rate as a buffer against external shocks” (Ha et al., 2020, p. 1). This study reaffirms the cited article’s findings that a country’s inflation’s impacts are dependent on the global and domestic economic variables, with increased oil price having significant impact (Ha et al., 2020). When higher than anticipated levels of inflation are expected or occur, businesses as well as investors take steps to reduce the negative impacts on their money. In Is commercial real estate a good hedge against inflation? Evidence from South Africa, Taderera et al. (2020) studied inflation hedging utilizing Commercial Real Estate in South Africa, and found “CRE is suitable for investors who are seeking a long-term inflation hedge,” however, “investors looking to hedge their wealth against inflation in the short-run would be better off looking into the listed properties market” (p. 12). This article is directly related to the cited article Global inflation dynamics and inflation expectations, as it outlines the findings of the study which provides guidance on investing to reduce the effects of inflation. As noted previously in the cited article, most advanced countries’ inflation reduces in a short period of time not exceeding two years. This information coupled with the findings of both studies, reveals hedging inflation by utilizing listed properties can reduce inflation impacts in advanced economies, however commercial properties are the better choice for long-term inflation considerations.
References
Ahmad, Y. S., & Staveley-O’Carroll, O. M. (2017). Exploring international differences in inflation dynamics. Journal of International Money and Finance, 79, 115–135. https://doi.org/10.1016/j.jimonfin.2017.09.002 (Links to an external site.)
Feldkircher, M., & Siklos, P. L. (2019). Global inflation dynamics and inflation expectations. International Review of Economics & Finance, 64, 217–241. https://doi.org/10.1016/j.iref.2019.06.004 (Links to an external site.)
Ha, J., Marc Stocker, M., & Yilmazkuday, H. (2020). Inflation and exchange rate pass-through. Journal of International Money and Finance, 105, 102187. https://doi.org/10.1016/j.jimonfin.2020.102187 (Links to an external site.)
King James Bible. (2017). King James Bible Online. https://www.kingjamesbibleonline.org/ (Links to an external site.) (Original work published 1769).
Pétursson, T. G. (2020). Long‐term inflation expectations and inflation dynamics. International Journal of Finance & Economics, 27(1), 158–174. https://doi.org/10.1002/ijfe.2144 (Links to an external site.)
Satterlee, B. (2018). International Business with Biblical Worldview (Custom Ed.). McGraw-Hill Custom.
Taderera, M., & Akinsomi, O. (2020). Is commercial real estate a good hedge against inflation? Evidence from South Africa. Research in International Business and Finance, 51, 101096. https://doi.org/10.1016/j.ribaf.2019.101096
