August 12, 2022 18:12 GMT
As the weaker-than-expected July import data suggested today, the strong USD will continue to act as a disinflationary force.
- Historically, moves in import prices (ex-petroleum) have corresponded closely to the opposite moves in the USD. On a Y/Y basis, the 8% rise in the broad USD the last 4 months would normally correspond to a Y/Y decline in ex-petroleum import prices of -2%, but the latter has averaged almost +7%.
- Supply chain bottlenecks pushing up global goods prices have been behind much of that discrepancy during the pandemic period, and with those now easing, we would expect Y/Y import prices to recouple with dollar strength and move back toward flat growth by early 2023.
- That should help keep a lid on core goods prices in future CPI readings.
Source: Fed, BLS, MNI