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News Link • Economy - Economics USA

Deutsche Bank: Fear The Declining Dollar and The Rise in Energy Prices

U.S. consumers may be about to get hit by a hike in energy prices that will act as a tax on consumption, according to Deutsche Bank. The worry is the declining value of the dollar will send commodity prices higher. And while wages remain sticky, consumers will have to pay more for energy, and to companies who produce. It works like this, according to Deutsche Bank (emphasis theirs): We estimate that every one percentage point decline in the real trade-weighted dollar translates into a $6 per barrel increase in oil prices. Every $6 dollar increase in oil prices is worth three cents more on retail gasoline prices. In turn, a three cent increase in retail gasoline prices is worth $3 billion in higher household energy consumption. Consequently, we can draw the conclusion that all else being equal, a one percentage point decline in the real-trade weighted dollar is equivalent to a $3 billion energy-related tax on household consumption. Ouch, so while dollar weakness may make U.S. exports more attractive abroad, costs for energy are going to rise and hit the consumer anyway.

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