IDEAS home Printed from https://ideas.repec.org/p/mpc/wpaper/0022.html
   My bibliography  Save this paper

Has trade with China affected UK inflation?

Author

Listed:

Abstract

This paper investigates empirically whether the level or growth of cheap imports from China has had an impact on UK inflation. We use two methods; the first calculates UK weighted world export price inflation as the sum of the effect of the inflation level in the UK's trading partners and the effect of substituting imports from more expensive countries with imports from countries with lower price levels. The second estimates these two effects on UK inflation using panel regressions. The results from the first method suggest that the substitution of imports from more expensive countries with imports from China reduced UK weighted world export price inflation by an average of -0.75 percentage points per annum from 2000 to 2004. Similarly, the panel regressions suggest that over the 1997-2005 period this substitution had a small but significant downward impact on UK CPI inflation. However, the same regressions also suggest that higher inflation in imports from China than in imports from other countries has put upward pressure on some components of UK CPI inflation. As this upward 'inflation effect' is likely to have outweighed the downward 'substitution effect' the regressions suggest that the overall effect of Chinese imports on UK CPI inflation from 1997-2005 was positive.

Suggested Citation

  • Wheeler, Tracy, 2008. "Has trade with China affected UK inflation?," Discussion Papers 22, Monetary Policy Committee Unit, Bank of England.
  • Handle: RePEc:mpc:wpaper:0022
    as

    Download full text from publisher

    File URL: https://www.bankofengland.co.uk/-/media/boe/files/external-mpc-discussion-paper/2008/has-trade-with-china-affected-uk-inflation
    File Function: Full text
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Auer, Raphael A. & Degen, Kathrin & Fischer, Andreas M., 2013. "Low-wage import competition, inflationary pressure, and industry dynamics in Europe," European Economic Review, Elsevier, vol. 59(C), pages 141-166.
    2. Andreas Benedictow & Pål Boug, 2014. "Calculating the real return of the Norwegian Government Pension Fund Global by alternative measures of the deflator," Discussion Papers 775, Statistics Norway, Research Department.
    3. Andreas Benedictow & Pål Boug, 2017. "Calculating the real return on a sovereign wealth fund," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 50(2), pages 571-594, May.
    4. Andreas Benedictow & Pål Boug, 2013. "Trade liberalisation and exchange rate pass-through: the case of textiles and wearing apparels," Empirical Economics, Springer, vol. 45(2), pages 757-788, October.
    5. Auer, Raphael & Fischer, Andreas M., 2010. "The effect of low-wage import competition on U.S. inflationary pressure," Journal of Monetary Economics, Elsevier, vol. 57(4), pages 491-503, May.
    6. Raphael Auer & Kathrin Degen & Andreas M. Fischer, 2010. "Globalization and inflation in Europe," Globalization Institute Working Papers 65, Federal Reserve Bank of Dallas.
    7. John Lewis & Jumana Saleheen, 2018. "Tailwinds from the East: how has the rising share of imports from emerging markets affected import prices?," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 42(5), pages 1343-1365.
    8. Pål Boug, 2017. "Exact and inexact decompositions of international price indices," Discussion Papers 868, Statistics Norway, Research Department.
    9. Andreas Benedictow & Pål Boug, 2022. "Exact and inexact decompositions of trade price indices," Empirical Economics, Springer, vol. 62(4), pages 1981-1994, April.

    More about this item

    Keywords

    Inflation; China; Imports;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F15 - International Economics - - Trade - - - Economic Integration

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mpc:wpaper:0022. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Bank of England Website (email available below). General contact details of provider: https://edirc.repec.org/data/mpcgvuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.