Inflation vs depreciation

Cardinal_Fang
Wed, 14 May 2008 23:34:41 +0000

Or-- inflation in a country means it costs more for the same thing. Therefore people in foreign countries don’t want to buy that thing, so there is less demand for the currency. Less exports, currency depreciates.

Example-- inflation in Japan. Costs more yen for the same bicycle, 200000 yen instead of 100000 yen. Now US consumers are less willing to pay $1000 for 100000 yen, because now their $1000 will buy only half a bicycle, not an entire bicycle. So yen depreciates versus dollar, and US consumers buy bicycles made in Singapore instead. (All numbers completely made up.)