What a Weak Dollar Means for Consumers

The dollar has fallen almost 5 percent this year.

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While inflation officially remains at bay, consumers are already feeling the pain of price increases at the pump, due in part to the weakening greenback. Markets for resources such as oil, copper, and other commodities are largely denominated in dollars, says Laurenti, which makes them especially sensitive to movements in the dollar's value. "If the dollar is weakening, people will ask for higher prices in dollars for copper, oil, and iron because they need to offset the weaker dollar so that they can make the same money in their own currency," he says.

Rising prices among commodities directly feed into inflation because rising input costs for producers could ultimately push prices up for goods further downstream. Import prices have risen in the past several months, partly due to rising costs of oil and food. "What we're seeing right now is higher oil prices and higher commodity prices, and producers have to make a tough decision, either reducing their margin and taking the brunt of the hit or passing on those higher costs and risk having lower demand," says Greg Daco, senior economist at IHS Global Insight. While consumers are noticing rising prices at gasoline stations and grocery stores, price increases have yet to filter through to consumers in other sectors, Daco says.

Above all, there are winners and losers when it comes to a weak dollar. While U.S. producers exporting to foreign countries might see a bump in profits, back home, consumers will increasingly feel the pinch as their dollars don't go as far as they used to.

Twitter: @mmhandley

Corrected 5/12/2011: A previous version of this story incorrectly identified Adolfo Laurenti. He is deputy chief economist.