The strong dollar is keeping a lid on import prices
Import prices have started to tumble, thanks to the strong dollar.
Why it matters: The decline shows one channel through which the Fed's rate hikes — the key reason for the recent strength in the greenback — can tamp down inflation.
Driving the news: Fresh government data on Thursday showed import prices fell sharply for the second straight month in August.
- Prices for all imports fell 1% during the month.
- Much of that was because of lower prices for imported petroleum, which dropped more than 7% during the month.
- It's not just oil though. Prices for non-fuel imports have fallen for four straight months.
Between the lines: The drop in import prices is really just the flip side of the runaway strength of the U.S. dollar.
- One widely watched measure of the dollar, the ICE U.S. dollar index, is up roughly 14% in 2022, a massive move compared to the moderate ranges currencies typically trade in.
How it works: When currencies appreciate it means that money is able to buy more foreign goods than it used to, or buy the same amount at a lower price. Thus, in this case, import prices are lower in dollar terms.
The bottom line: The decline in import prices — which have become a larger factor in driving overall inflation since COVID hit — should at least be helpful on the margin to the Fed's effort to rein in inflation.