Asked and answered.Question for the board. Does the dollar's drop in value relative to other currencies have an impact on inflation? Were heavy importers...
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).
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.Ducati was keeping prices the same or slightly higher on some of their motorcycles by using cheaper components where they could.
DD
It's a lot like grocery packaging getting smaller and smaller in order to make it look like prices aren't rising.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?