Academic journal article Economics & Sociology

The Research on the Impact of the Changes of Commodity Price Level in the World Commodity Exchanges on Variation of General Price Level

Academic journal article Economics & Sociology

The Research on the Impact of the Changes of Commodity Price Level in the World Commodity Exchanges on Variation of General Price Level

Article excerpt

(ProQuest: ... denotes formulae omitted.)

Introduction

For many years modern economies is facing significant problem of overall increasing general price level. During which the value of monetary unit falls and decreases its purchasing power - so called inflation appears. Inflation affects not only the area of prices, but directly and indirectly it touches the various areas of economic and social life, causing many negative consequences for country"s economic development.

Commodity prices are volatile as well as most of commodity exchanges are volatile and dynamic. It affects the domain of specific fields, such as agricultural economics. For many financial institutions worldwide commodity trading has become an important mean to gain profit. Commodities nowadays are an important component of many investors' portfolios.

One of the most influential factors affecting inflation rate is the price of production costs, from which mainly depends the final price of goods and services in a market. Therefore the price changes of the most important commodities in the world"s commodity exchange markets influence the price of local producers or imported production. This paper analyses the influence of price changes of commodities to general price level in Lithuania. The aim of the research is to analyze the variation of general price level in Lithuania and changes the prices of commodities in the world"s commodity exchange markets, identify the influence of the price changes of commodities on variations of general price level as inflation"s parameter. In order to achieve the aim correlation regression analysis was used. It allows to set the relation and establish the connection between price changes of commodities and general price level.

1. Inflation and factors conditioning it

Relative prices changes, income and assets are repartitioned among the different people and groups, indexes of national production and employment depart form the average during the inflation period. In such situation some are winners, some are losers. But these factors have an influence on the whole economy. The costs of inflation depend not only on its rate, but also on the expectation factor. When inflation is expected people may prepare better, and impact will be less painful (Snieska, 2006). It is important to notice that increase of prices of one product or several groups of products is not evaluated as inflation. Scientific and technological development and demand fluctuations allow the prices to increase and decrease. At the other hand change of prices of particular groups of products can be named as increase of price level. That is why the inflation and the change of price level are adequate terms when it comes to the growth of general price level. Some economists emphasize that the inflation is not onetime, but long term change of price level.

Inflation and tax system operate similarly - they take somebody?s asset and give it to others meaning the re-distribution of assets and income. If possible to forecast the rate of inflation and to readjust the prices and wages in accordance with it no problems will arise. High inflation can destabilize or even destroy countries economy (Snieska, 2006). Significant economic, social and political problems arise when it is difficult to forecast price level change. It?s connected with the distribution of assets and income among different subjects in the economy. This re-distribution is spontaneous and touches despite the age and financial position. Therefore it is sometimes emphasized that inflation (deflation) has no social consciousness (Snieska, 2006; Gerdesmeier, 2009). But usually the inflation and deflation has the influence on the poorest groups of society, as they have limited possibilities to protect themselves. So, the price stability helps to maintain the cohesion of the society (Gerdesmeier, 2009). Conferment and maintenance of deflation or high inflation according to Duisenberg (Ghoshray, 2014) is equal to maintenance of offence against the society. …

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