Originally Posted by
Koyote
This would be correct -- sort of. Higher inflation for the US$ means a lower exchange rate, which means it'll take more US$ to buy the number of New Taiwan Dollars needed to obtain that bike, or bike frame, or whatever. But in real terms (adjusted for inflation), it's a wash, since each dollar is worth less.
Reverse the logic for inflation of the New Taiwan Dollar, with the same net result in real terms.
In other words, flexible exchange rates should make all of these scenarios moot...As long as a few assumptions are met.
This is a bit of a tangent. Yes, exchange rates (which can be affected by differing rates of inflation) can result in up or down fluctuations of prices.
However, assuming both currencies are experiencing inflation over time (and nearly all healthy currencies do) the prices of things still trends up.
If the question is how much a bike from Taiwan cost in US dollars in 2010 vs 2020, then assuming that at least one of those currencies has experienced inflation, and neither has deflated, the price is going to be higher in 2020.
The US and China have both has positive inflation for the past 10 years. Taiwan has has positive inflation all but two, and those only slightly negative.
The differences in inflation rates for the US dollar and whatever Taiwan uses will affect how MUCH the prices increase.