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Dollar vs CPI
Old 03-18-2008, 12:27 PM   #1
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Dollar vs CPI

Question for the board. Does the dollar's drop in value relative to other currencies have an impact on inflation? Were heavy importers...

A small discussion or primer is appreciated if you have time to share knowlege.
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Old 03-18-2008, 03:17 PM   #2
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Question for the board. Does the dollar's drop in value relative to other currencies have an impact on inflation? Were heavy importers...
Asked and answered.
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Old 03-18-2008, 10:02 PM   #3
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Buku - as you and donheff pointed out we import alot of our essentials. As the US $ falls those become more expensive for us to buy so it is inflationary.

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Old 03-18-2008, 10:06 PM   #4
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This is what CNBC says: Weak Dollar - Why You Should Care - CNBC By The Numbers - MSNBC.com

Gross imports are $2.4 trillion. Total GDP is $14.1 trillion. Therefore imports/GDP = 17%

If the cost of imports, in dollars, goes up by 6%, and if that increased cost flows through perfectly to consumers, then that would impact the total CPI by 6% x .17 = 1%.

Note the second CNBC graph is neat, but the scales are different. The dollar appears to have lost about 19% of its value over 5 years, but import prices only went up 10%.

I think the difference between the 19% and the 10% is business decisions. For example, the prices of German cars haven't gone up 19% faster than the prices of American cars. Maybe some of the car companies have protected their profits with currency hedges. More likely, they are taking losses temporarily in order to protect market share.

Eventually they have to reflect the currency differences in their prices or move operations to the US. Volkswagen is currently negotiating "incentive packages" with a few states for a US assembly plant (per a front page story in Automotive News regarding strategies for living with the weak dollar).
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Old 03-18-2008, 10:06 PM   #5
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Though it does make our goods, services, and assets cheaper for furiners...

Wanna buy Rockefeller Center?
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Old 03-19-2008, 12:15 AM   #6
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This is what CNBC says: Weak Dollar - Why You Should Care - CNBC By The Numbers - MSNBC.com

Gross imports are $2.4 trillion. Total GDP is $14.1 trillion. Therefore imports/GDP = 17%

If the cost of imports, in dollars, goes up by 6%, and if that increased cost flows through perfectly to consumers, then that would impact the total CPI by 6% x .17 = 1%.

Note the second CNBC graph is neat, but the scales are different. The dollar appears to have lost about 19% of its value over 5 years, but import prices only went up 10%.

I think the difference between the 19% and the 10% is business decisions. For example, the prices of German cars haven't gone up 19% faster than the prices of American cars. Maybe some of the car companies have protected their profits with currency hedges. More likely, they are taking losses temporarily in order to protect market share.

Eventually they have to reflect the currency differences in their prices or move operations to the US. Volkswagen is currently negotiating "incentive packages" with a few states for a US assembly plant (per a front page story in Automotive News regarding strategies for living with the weak dollar).
Ducati was keeping prices the same or slightly higher on some of their motorcycles by using cheaper components where they could.

DD
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Old 03-19-2008, 08:45 AM   #7
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Ducati was keeping prices the same or slightly higher on some of their motorcycles by using cheaper components where they could.

DD
I just read about some bike manufacturer who kept carbon forks on a bike but downgraded the gearing to keep the price point level. That is obnoxious behavior designed to fool the unsophisticated buyer.
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Old 03-19-2008, 08:57 AM   #8
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I just read about some bike manufacturer who kept carbon forks on a bike but downgraded the gearing to keep the price point level. That is obnoxious behavior designed to fool the unsophisticated buyer.
It's a lot like grocery packaging getting smaller and smaller in order to make it look like prices aren't rising.

Anyone remember 32 ounce jars of pasta sauce? Rather than raise prices, they went to 30 ounces to 28 ounces to 26 ounces. Now old recipes that called for a 32 ounce jar are pretty screwed up.

Oh yeah, and there's also the 1.5 quart and 1.75 quart tubs of ice cream, down from the traditional half gallon. I wonder if the CPI "substitutes" smaller packages in place of larger and says prices don't change?
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Old 03-19-2008, 09:12 AM   #9
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It's a lot like grocery packaging getting smaller and smaller in order to make it look like prices aren't rising.

Anyone remember 32 ounce jars of pasta sauce? Rather than raise prices, they went to 30 ounces to 28 ounces to 26 ounces. Now old recipes that called for a 32 ounce jar are pretty screwed up.

Oh yeah, and there's also the 1.5 quart and 1.75 quart tubs of ice cream, down from the traditional half gallon. I wonder if the CPI "substitutes" smaller packages in place of larger and says prices don't change?
The BLS says they compare "identical" items. I'm quite confident that they catch package size.

Their "hedonic" system is supposed to catch changes in what the rest of us call "quality". So they have an analyst who is suposed to know something about bicycles and makes adjustments when quality changes (either up or down). But I have no idea how good those analysts are.
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