Inflation and currency markets

How it works

Higher inflation may lead markets to expect tighter monetary policy, but it can also weaken confidence if inflation is persistent or policy credibility is questioned.

What to check

Use official consumer-price releases and focus on the trend, composition and policy response. Comparing countries requires consistent definitions and an understanding of different inflation targets.

• Use official inflation data
• Compare with policy targets
• Avoid simple one-variable explanations

Limits and risks

There is no one-way rule linking inflation and exchange rates. The market response depends on expectations, interest rates, growth and confidence.