Central Banks of Commodity Exporting Countries Seem To Be Relaxed With Their Inflation Rates

The central banks of commodity exporting countries are in a good position when compared to the central banks of commodity importing G10 countries. Their inflation rates are either within the target range like that of Bank of Canada, Reserve Bank of Australia, or only just below it like Reserve Bank of New Zealand, or like Norges Bank's above target rate.

The fact that helps them is terms of trade (ToT), which is dropping due to declining oil prices. The "imported inflation" cannot be only reached through high import prices, but also through falling export prices, even when the demand for the export goods reacts in an inelastic manner to the price fall.

The exchange rate reactions likely seem to be the reason behind this. AUD fell more than 22% vs its trade partners since 2013 spring, NOK plunged around 21% during the same period.

If such rate moves are caused by falling export prices, then as far as inflation is concerned, things would move in a right direction.

"The central banks mentioned above cannot react to the "normal" inflation rates with a normalisation of their monetary policy, as price developments are only "normal" because the central banks concerned accept the depreciation of the currencies concerned, or have even supported it", says Commerzbank in a research note.