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Recent Appreciation in the U.S. Dollar Unlikely to Have Large Effect on Domestic Inflation

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Abstract

The U.S. dollar has appreciated more than 8.5 percent since May 2021, raising questions about potential effects on domestic inflation. If imports are billed in foreign currencies, then a strong dollar could reduce import prices and therefore domestic inflation. However, U.S. imports are almost entirely invoiced in U.S. dollars, dampening this effect. We find that the recent appreciation in the U.S. dollar has a negligible effect on domestic inflation as measured by the core price index for personal consumption expenditures.

Suggested Citation

  • Johannes Matschke & Sai Sattiraju, 2022. "Recent Appreciation in the U.S. Dollar Unlikely to Have Large Effect on Domestic Inflation," Economic Bulletin, Federal Reserve Bank of Kansas City, issue August 17, pages 1-4, August.
    • Handle: RePEc:fip:fedkeb:94773
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    1. Goldberg, Linda S. & Tille, Cédric, 2008. "Vehicle currency use in international trade," Journal of International Economics, Elsevier, vol. 76(2), pages 177-192, December.
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    More about this item

    Keywords

    Inflation; US dollar;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

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