Imported inflation

The nation’s heavy reliance on imports has contributed to local inflation because of the floundering value of the U.S. dollar

By JON CHESTO
The Patriot Ledger

Why does it seem that everything is costing more?

The relatively high inflation in recent months has made worse by the weakness of the dollar compared to currencies in other major economies which are the sources of raw materials, finished goods, food and energy for the United States.

The U.S. dollar recently dipped to a new low versus the Euro, and the number of Chinese yuan that can be purchased with a dollar has been shrinking during the past year. Meanwhile, in recent months, the annualized U.S. inflation rate, as measured by the federal government’s consumer price index, has exceeded 4 percent.

Simply put, a weak dollar makes it more expensive to buy items that are valued in another country’s currency.

Andre Mayer, senior vice president of research at Associated Industries of Massachusetts, said a declining dollar has a tendency to increase domestic inflation, particularly among imports from more mature economies such as Europe’s and Canada’s.

In particular, Mayer said the weak dollar has contributed to inflation among “semi-luxury” items and specialty foods imported from Europe.

“We’ve been able to benefit over the last 10 years from some (relatively) low prices for oil and other commodities,” Mayer said. “Those prices are now going up. Some of that has to do with demand in the world economy and some of that has to do with the dollar going down.”

The weak dollar contributed to significant rises in import prices that were recently reported by the U.S. Department of Labor for many categories of items. Imports have seen an overall increase in price of more than 14 percent from February 2007 to February 2008, largely due to petroleum costs.

And that wasn’t the only things going up: prices for imported food and beverage items rose 11 percent from February 2007 to February 2008.

However, prices for consumer goods such as electronics, toys and other items imported from China rose just 2.1 percent over the past year.

That rate will likely increase as the dollar continues to slide compared with the yuan. “I don’t know that we’ve yet seen a big run-up in prices on the products from China and East Asia,” Mayer said. “Obviously, at some point, we will.”