Sep

22

From a US perspective, dollar depreciation will cause the price of luxuries to go up, the price of foreign vacations to go up, and the price of foreign assets (real or portfolio) to go up. But the cost of consumer and industrial goods may not change much, due to competitive and substitution effects such as:

1. Many foreign-labeled cars, chemicals, industrial products are already produced in the US.

2. Producers of goods exported to the US will fight hard to protect their markets. They will cut costs, margins, and aggressively change sourcing to offset the dollar depreciation.

3. Buyers of imported goods will shift to lower cost sources.

The bigger threat from dollar depreciation is if raw material producers, particularly oil producers, change their pricing from dollar-based to another currency or basket. Right now, as the dollar depreciates, the cost of oil to Europe goes down, but the cost to the US remains unchanged.


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