The Research on the Impact of the Changes of Commodity Price Level in the World Commodity Exchanges on Variation of General Price Level

Abstract

ABSTRACT. The purpose of the paper is to investigate the influence of changes of commodity price level in the world commodity exchanges on variation of general price level index in Lithuania. Object of the research is commodity price level in the world commodity exchanges. The methodology applied is following: study of the recent scientific literature, collection and analysis of statistical data, correlation regression analysis. The conclusion can be made that variation of general price level in Lithuania depends on changes of commodity prices in world commodity exchanges, mostly from the prices of aluminium, cocoa, coal and oil. Regression function made with analysed commodities is adequate to real situation and chosen variables X explain the 64% of inflation variability and 36% are explained by other factors. The results show that the determinate regression function could be practically used to forecast the dependence of inflation rate on the particular factors.JEL Classification: E31Keywords: general price level, inflation, commodity price, commodity exchange, market, Lithuania.(ProQuest: ... denotes formulae omitted.)IntroductionFor many years modern economies is facing significant problem of overall increasing general price level. During which the value of monetary unit falls and decreases its purchasing power - so called inflation appears. Inflation affects not only the area of prices, but directly and indirectly it touches the various areas of economic and social life, causing many negative consequences for countrys economic development.Commodity prices are volatile as well as most of commodity exchanges are volatile and dynamic. It affects the domain of specific fields, such as agricultural economics. For many financial institutions worldwide commodity trading has become an important mean to gain profit. Commodities nowadays are an important component of many investors' portfolios.One of the most influential factors affecting inflation rate is the price of production costs, from which mainly depends the final price of goods and services in a market. Therefore the price changes of the most important commodities in the worlds commodity exchange markets influence the price of local producers or imported production. This paper analyses the influence of price changes of commodities to general price level in Lithuania. The aim of the research is to analyze the variation of general price level in Lithuania and changes the prices of commodities in the worlds commodity exchange markets, identify the influence of the price changes of commodities on variations of general price level as inflations parameter. In order to achieve the aim correlation regression analysis was used. It allows to set the relation and establish the connection between price changes of commodities and general price level.1. Inflation and factors conditioning itRelative prices changes, income and assets are repartitioned among the different people and groups, indexes of national production and employment depart form the average during the inflation period. In such situation some are winners, some are losers. But these factors have an influence on the whole economy. The costs of inflation depend not only on its rate, but also on the expectation factor. When inflation is expected people may prepare better, and impact will be less painful (Snieska, 2006). It is important to notice that increase of prices of one product or several groups of products is not evaluated as inflation. Scientific and technological development and demand fluctuations allow the prices to increase and decrease. At the other hand change of prices of particular groups of products can be named as increase of price level. That is why the inflation and the change of price level are adequate terms when it comes to the growth of general price level. Some economists emphasize that the inflation is not onetime, but long term change of price level. …