Sep 16, 2022 - Economy

The strong dollar is keeping a lid on import prices

U.S. import price inflation
Data: FactSet; Chart: Simran Parwani/Axios

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.

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