Will inflation in Australia causes currency devaluation ?
April 29th, 2008 | by winsonlee | 
Had a conversation about currency with my friend few days back. The conversation is quite interesting which made me find out more on how interest rate control inflation and how inflation caused devaluation of the currency. Inflation is caused by excessive consumer and government spending which result the increase in the level of consumer prices or a persistent decline in the purchasing power of money. Australia inflation rate went up to more then 4% for the first time in seven years. High inflation causes the goods become comparatively less competitive. Currency needs to be depreciated to maintain the competitiveness of exports. That is how high uncontrol inflation will cause the devaluation of the currency.
The currency against the dollar is the highest since 1984. To combat further inflation raise, Reserve Bank will probably lift the interest rates again in May.
Generally, a steady process of inflation is not considered a devaluation, although if a currency has a high level of inflation, its value will naturally fall against gold or foreign currencies.
