[littlestymaar]

The biggest argument against inflation as a monetary phenomenon right now is the foreign exchange rate: inflation is higher in the US than in the Eurozone, while a dollar is worth significantly more euros than what it was worth a year ago.

In fact, if your salary is labelled in dollar and you live in Europe, your purchasing power increased in that period, which shows that the current level of inflation in the US isn't cause by the intrinsic value of the dollar going down.

[executesorder66]

I see what you are saying, but just because the cost of living goes up in the US, does that really mean that the value of the USD as a commodity in it's own right must go up/down?

Many countries have their own reserves for the USD, which they use for their own purposes, and may exchange their reserves with each other, in a way where the US isn't even involved at all.

So in the forex markets the USD is just another commodity, and not a direct representation of the cost of living in the USA.

Going the other direction though, if the value of the USD goes up or down, I can see how that would affect the cost of living _within_ the USA since it is the local currency there. But outside the USA, why would it affect the cost of living in another country where they use some other currency?

This isn't really my field though, I'm just throwing out my thoughts. If anything I've written is wrong, I'm happy to read an explanation as to why.

[noduerme]

This is a good case for why we're looking at a global phenomenon, but as far as relative inflation it's not that much higher in the US, and currency markets are taking into account what they think will happen in the future, i.e. without Russian energy the eurozone will see much more expensive goods. But even Japan went from deflation to 2.5% inflation in the past few months, so the forex markets are considering where those lines will cross over.

[fallingfrog]

Wait.. how can that be true? If a dollar last year is worth .5 dollars today, and a Euro last year is worth .8 Euros today, then surely the value of the dollar against the Euro has declined to .5/.8 of what it was last year?

[tlb]

Exchange rates affect inflation for imports, but not for domestic goods. So varying exchange rates by 5% might only change inflation by 1-2% (depending which inflation metric you use).

Like many things in macroeconomics, the exchange rate / inflation relationship should be true in equilibrium. But several things are out of equilibrium right now due to supply chain disruptions and a demand surge after the pandemic.

[fallingfrog]

This is an interesting observation! If you follow that train of thought, it might be possible for there to be a situation where in the United States, you can trade one dollar for .8 Euros, and in Europe, you trade one Euro for .8 dollars. In that case there is no single number for exchange rate. This could be the case because in order to spend your US dollars from Europe, you would have to travel to the USA, buy something, and then import it back, and vica versa. So how do exchanges quote a single number for exchange rate?

[littlestymaar]

> several things are out of equilibrium right now due to supply chain disruptions and a demand surge after the pandemic.

And some things (most of them actually) are never at their equilibrium price for many reasons (but mostly because the characteristic time to reach equilibrium is higher than the frequency of perturbations). A bit like how it's completely fine to still have snow outside even if the temperature is firmly above zero Celsius.