However, it misses the other side-effect of imported inflation, namely the effect of substitution. If good or service A is imported but priced in a relatively appreciating currency, and service B is non-imported and priced in the local currency, the price of B drops, driving demand upwards. If B is also exported, the export markets seeing a relative drop in the value of the currency B is priced in will also buy more of B, further driving demand upwards.
Consequently, imports become more expensive even without a drop in demand. Exportable items (or even just substitutes for imports) become more expensive in response to increased demand.
"Imported inflation" listed as "2." under "Causes of Cost Push Inflation".
http://www.economicshelp.org/blog/2006/economics/cost-push-i...
However, it misses the other side-effect of imported inflation, namely the effect of substitution. If good or service A is imported but priced in a relatively appreciating currency, and service B is non-imported and priced in the local currency, the price of B drops, driving demand upwards. If B is also exported, the export markets seeing a relative drop in the value of the currency B is priced in will also buy more of B, further driving demand upwards.
Consequently, imports become more expensive even without a drop in demand. Exportable items (or even just substitutes for imports) become more expensive in response to increased demand.
A bit more here:
http://www.economicshelp.org/blog/1491/economics/imports-and...