Import Prices and the Renminbi - Let Sleeping Dogs Lie?
The chart below shows the behavior of U.S. import prices from the European Union, Japan and the Asian NICs (Hong Kong, Singapore, South Korea and Taiwan) in recent years. Notice that the growth in import prices from the European Union has far outpaced that from Japan and the Asian NICs. Of course, the principal explanation for this is that the dollar has depreciated more in recent years against the European Union currencies than against the Asian currencies. And, of course, the principal reason for these differences in dollar depreciation is that the European Union central banks have not intervened to prevent the rise in their currencies whereas the Asian central banks have intervened. If China finally relents and allows the renminbi to appreciate against the dollar, there is a high probability that other Asian monetary authorities will allow more appreciation of their currencies versus the dollar, too. In 2004, about 20% of our goods imports originated from the European Union while 33% originated from the Pacific Rim. Thus, a given percentage depreciation of the dollar versus Asian currencies would likely put more upward pressure on import prices and consumer prices than would a depreciation against European Union currencies. For the sake of U.S. inflation and Fed rate hikes, let's hope the Chinese resist our self-destructive harangues. (For a like opinion on our self-destructive ways with regard to the renminbi, see Phillip Swagel's op-ed piece "Yuan Answers?" in the June 10th edition of The Wall Street Journal.)
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Author: Paul Kasriel
Paul L. Kasriel
Director of Economic Research
The Northern Trust Company
Economic Research Department
Positive Economic Commentary
"The economics of what is, rather than what you might like it to be."
50 South LaSalle Street, Chicago, Illinois 60675
Paul joined the economic research unit of The Northern Trust Company in 1986 as Vice President and Economist, being named Senior Vice President and Director of Economic Research in 2000. His economic and interest rate forecasts are used both internally and by clients. The accuracy of the Economic Research Department's forecasts has consistently been highly-ranked in the Blue Chip survey of about 50 forecasters over the years. To that point, Paul received the prestigious 2006 Lawrence R. Klein Award for having the most accurate economic forecast among the Blue Chip survey participants for the years 2002 through 2005. The accuracy of Paul's 2008 economic forecast was ranked in the top five of The Wall Street Journal survey panel of economists. In January 2009, The Wall Street Journal and Forbes cited Paul as one of the few who identified early on the formation of the housing bubble and foresaw the economic and financial market havoc that would ensue after the bubble inevitably burst. Through written commentaries containing his straightforward and often nonconsensus analysis of economic and financial market issues, Paul has developed a loyal following in the financial community. The Northern's economic website was listed as one of the top ten most interesting by The Wall Street Journal. Paul is the co-author of a book entitled Seven Indicators That Move Markets.
Paul began his career as a research economist at the Federal Reserve Bank of Chicago. He has taught courses in finance at the DePaul University Kellstadt Graduate School of Business and at the Northwestern University Kellogg Graduate School of Management. Paul serves on the Economic Advisory Committee of the American Bankers Association.
The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The information herein is based on sources which The Northern Trust Company believes to be reliable, but we cannot warrant its accuracy or completeness. Such information is subject to change and is not intended to influence your investment decisions.
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