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Dollar Strength Will Continue To Be A Disinflationary Force

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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

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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