Posted on 12/19/2007 3:14:55 PM PST by Toddsterpatriot
The plunging dollar has sent inflation alarm bells clanging across the U.S. But they may be false alarms.
A battery of research has been building over the years that the dollar doesn't drive U.S. inflation like it used to.
A key reason: Foreign exporters are so keen to keep U.S. market share that when the dollar weakens, they often lower their prices to keep them constant after the currency effect. That's especially true when the economy is slowing and consumers are less willing to pay higher prices.
A 10% decline in the value of the dollar -- the drop seen over the last year -- might be expected to raise the price of imports by 10%. But the actual pass-through is a fraction of that. Studies have found that only one-quarter to one-tenth of a currency depreciation gets passed through as higher prices for imported products.
Snip....The declining dollar used to have a bigger impact on import prices. From the mid-1970s through the 1990s, the pass-through rate was as high as 50% -- meaning a 10% drop in the dollar would raise import prices by 5%. This decade the pass-through rate has been less than 25%. For the overall economy, that's still a small increase because imports are a fraction of the goods consumed.
(Excerpt) Read more at online.wsj.com ...
Ping!
“A key reason”
The key-est — how the govt. calculates inflation.
The dollar has been strengthening since last week’s low inflation data. This article is already outdated.
Hey what inflation? Fed says it’s under control.
And people are switching to other currencies. You can buy stuff with pesos here in Dallas, even pizza.
The premise of the article isn’t outdated rather the dollar is strenghtening or not.
How BBM calculates inflation: The first Consumer Reports "Best Buy" 36" HDTV I bought two years ago - $1199. This year, the better model 36" HDTV I bought - $899. That's a lot of eggs that went up 60 cents a dozen.
yitbos
The greenback didn't drop 10% against the ChiCom yawn or the Japanese yen. Lots of imports from those guys.
yitbos
The dollar hasn't done a lot of plunging lately.
You do realize the dollar has appreciated in the last 5 years vs the Peso right? And is flat from 1 year ago? Besides the euro currencies, the canadian dollar (which has gone up tremendously due to oil exports) and the brazilian real, the $ hasn’t dropped a tremendous amount in the last 5 years—especially with regards to the Asian currencies.
When the Canadian dollar was known as the northern Peso, some things were priced lower in Canada (allowing for exchange rates) than in the U.S. Some cars were 25% cheaper in Canada than the U.S. The only way this price differential held up, was because car companies enforced it through their dealership franchise system. Canadian dealers were not allowed to sell cars to Americans.
Items, such as computers, that could be gotten from multiple sources, were priced roughly the same on either side of the border (again, allowing for exchange rates).
Those must have been the bells that predicted all seven of the last two inflationary epochs America's seen. Your graph tells it all. The plunging dollar does not affect inflation, and it does not affect the trade deficit. Sam Goldwyn understood the situation well with his famous "Nobody knows nothin'!!"
I read an FT article (op-ed?) where the writer observed that a weaker dollar increased gulf oil state receipts, a portion of which are placed in US government debt. When gulf states purchase more US government debt, this has the effect of reducing the interest yield of such debt. As a result of this dynamic, a weakening dollar works (ceteris paribus) to reduce the interest rates paid on US government debt.
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