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Devaluation vs. Inflation: Know the Difference

Shumaila Saeed
By Shumaila Saeed || Updated on December 25, 2023
Devaluation is the decrease in a currency's value compared to other currencies, while inflation refers to the overall rise in prices, leading to reduced purchasing power of money.
Devaluation vs. Inflation

Key Differences

Devaluation is a deliberate downward adjustment of a currency's value by a country's government or central bank, often to improve trade balance. Inflation is an economic condition where there is a sustained increase in the general price level of goods and services in an economy over a period.
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Nov 11, 2023
Devaluation directly impacts international trade by making exports cheaper and imports more expensive. Inflation, however, affects domestic purchasing power, making goods and services costlier for residents.
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Nov 11, 2023
While devaluation is a policy tool specific to currency values and exchange rates, inflation is a broader economic phenomenon that can be influenced by various factors, including money supply and demand.
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Nov 11, 2023
The effects of devaluation are more immediate on international trade relationships and foreign exchange markets. Inflation tends to have a more gradual impact, influencing the cost of living and economic stability over time.
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Nov 11, 2023
Devaluation can sometimes be a response to or a cause of inflation. When a currency is devalued, imports become more expensive, which can contribute to inflation. Conversely, high inflation can lead to a loss of confidence in a currency, prompting devaluation.
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Nov 11, 2023
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Comparison Chart

Definition

Decrease in currency value relative to other currencies
General increase in prices and decrease in purchasing power
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Primary Focus

Exchange rate and international trade
Domestic price level and purchasing power
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Mechanism

Government or central bank action
Economic factors like money supply and demand
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Immediate Impact

Affects import-export balance
Gradual impact on cost of living
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Relationship with Each Other

Can cause or be a response to inflation
Can be influenced by devaluation
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Devaluation and Inflation Definitions

Devaluation

Reduction in currency value
The devaluation made their exports more competitive.
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Nov 11, 2023

Inflation

General rise in price levels
Inflation caused the cost of groceries to skyrocket.
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Nov 11, 2023

Devaluation

Affects international trade
Post devaluation, their imports became costlier.
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Inflation

Can be influenced by monetary policy
Central bank policies tried to control inflation.
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Devaluation

Official lowering of currency exchange rate
After the devaluation, foreign travel became more expensive.
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Inflation

Decrease in money's purchasing power
Inflation meant that their savings bought less over time.
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Nov 11, 2023

Devaluation

Government's decision to reduce currency value
The devaluation was aimed to correct trade imbalances.
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Nov 11, 2023

Inflation

Economic phenomenon affecting cost of living
With inflation, the cost of living in the city rose significantly.
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Nov 11, 2023

Devaluation

Alters exchange rate dynamics
The devaluation affected how much foreign currency they could buy.
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Inflation

The act of inflating or the state of being inflated.
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Oct 19, 2023

Devaluation

To lessen or cancel the value of.
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Oct 19, 2023

Inflation

A persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money.
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Oct 19, 2023

Devaluation

To lower the exchange value of (a currency) by lowering its gold equivalency.
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Oct 19, 2023

Inflation

The rate at which this increase occurs, expressed as a percentage over a period of time, usually a year.
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Oct 19, 2023

Devaluation

To lower the exchange value of a currency by lowering its gold equivalency.
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Oct 19, 2023

Inflation

An act, instance of, or state of expansion or increase in size, especially by injection of a gas.
The inflation of the balloon took five hours.
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Oct 19, 2023

Devaluation

The removal or lessening of something's value.
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Oct 19, 2023

Inflation

(economics) An increase in the general level of prices or in the cost of living.
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Oct 19, 2023

Devaluation

(economics) The intentional or deliberate lowering of a currency's value compared to another country's currency or a standard value (e.g. the price of gold).
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Oct 19, 2023

Inflation

(economics) A decline in the value of money.
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Oct 19, 2023

Devaluation

Depreciation.
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Oct 19, 2023

Inflation

(economics) An increase in the quantity of money, leading to a devaluation of existing money.
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Oct 19, 2023

Devaluation

An official lowering of a nation's currency; a decrease in the value of a country's currency relative to that of foreign countries
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Oct 19, 2023

Inflation

Undue expansion or increase, as of academic grades.
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Oct 19, 2023

Devaluation

The reduction of something's value or worth
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Inflation

(cosmology) An extremely rapid expansion of the universe, theorized to have occurred very shortly after the big bang.
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Oct 19, 2023

Inflation

The act or process of inflating, or the state of being inflated, as with air or gas; distention; expansion; enlargement.
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Oct 19, 2023

Inflation

The state of being puffed up, as with pride; conceit; vanity.
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Oct 19, 2023

Inflation

Persistent expansion or increase in the general level of prices, usually caused by overissue of currency, and resulting in a reduced value of the currency. It is contrasted with deflation, and is when it occurs to a very high degree is called hyperinflation.
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Oct 19, 2023

Inflation

A general and progressive increase in prices;
In inflation everything gets more valuable except money
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Inflation

(cosmology) a brief exponential expansion of the universe (faster than the speed of light) postulated to have occurred shortly after the big bang
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Oct 19, 2023

Inflation

Lack of elegance as a consequence of being pompous and puffed up with vanity
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Oct 19, 2023

Inflation

The act of filling something with air
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Inflation

Measured by consumer price index
The inflation rate was reported to be 4% this year.
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Nov 11, 2023

Repeatedly Asked Queries

Can a country devalue its currency to control inflation?

While devaluation can influence inflation, it's not typically used as a direct tool to control it.
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How does inflation affect everyday life?

Inflation increases the cost of goods and services, affecting everyday expenses and reducing purchasing power.
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Does devaluation always lead to inflation?

Not always, but devaluation can lead to higher import costs, which might contribute to inflation.
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Can inflation be positive for an economy?

Moderate inflation is often seen as a sign of a growing economy, but high inflation is usually harmful.
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What causes devaluation?

Devaluation is typically caused by government or central bank policies aiming to adjust the currency's value for economic reasons.
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What impact does devaluation have on debt?

Devaluation can make servicing foreign debt more expensive for a country.
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What are the signs of inflation in an economy?

Signs include rising prices, decreased purchasing power, and possibly higher interest rates.
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How is inflation measured?

Inflation is commonly measured by indices like the Consumer Price Index (CPI).
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Is inflation always a bad thing?

Not necessarily; moderate inflation is normal in a growing economy, but hyperinflation is detrimental.
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Can devaluation affect tourism?

Yes, devaluation can make a country cheaper for tourists, potentially increasing tourism.
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What is the main goal of devaluation?

The main goal is often to improve a country's trade balance by making exports cheaper and imports more expensive.
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What role does monetary policy play in inflation?

Central banks use monetary policy to control money supply and interest rates, influencing inflation.
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What are the risks of high inflation?

High inflation can lead to economic instability, reduced savings value, and decreased investment.
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Do all countries experience devaluation?

Not all countries experience devaluation; it depends on their economic policies and conditions.
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What is the difference between devaluation and depreciation?

Devaluation is a deliberate policy action, while depreciation is a market-driven decrease in currency value.
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How do businesses adapt to inflation?

Businesses may increase prices, reduce costs, or innovate to maintain profitability during inflation.
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Are there any benefits to inflation?

Controlled inflation can stimulate spending and investment, contributing to economic growth.
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Can devaluation improve a country's competitiveness?

Yes, by making exports cheaper and more attractive on the international market.
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How can consumers protect against inflation?

Investing in assets that appreciate or maintain value over time can be a protection against inflation.
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Can a strong currency be devalued?

Yes, even strong currencies can be subject to devaluation for economic strategy reasons.
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Nov 11, 2023

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Shumaila Saeed
Written by
Shumaila Saeed
Shumaila Saeed, an expert content creator with 6 years of experience, specializes in distilling complex topics into easily digestible comparisons, shining a light on the nuances that both inform and educate readers with clarity and accuracy.

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