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Weaker Dollar Adds To Consumers' Economic Troubles

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By TIM PARADIS, The Associated Press

Published: December 15, 2007

NEW YORK - Consumers grousing about soaring gas prices often focus on the big oil companies and anyone else who might profit when it costs more at the pump. One culprit that doesn't always get blamed when prices rise - a weak dollar - could draw more attention in the coming year.

The dollar's slide against other major currencies in recent years has helped drive up prices for energy and food and in turn contributed to the economic hardship some consumers face. A further drop in the dollar in 2008 could spell more trouble.

Dave Minucci listens to the chatter on Wall Street about the flagging dollar but doesn't have to look far to cast his own assessment. A recent home heating bill was $120 higher than at the same time last year. Minucci doesn't blame lower temperatures; the chill he feels is from higher energy prices and a weaker dollar.

He sees what many Americans may not realize: With commodities from oil to natural gas to grain to meat priced in dollars and becoming more expensive as the greenback falls, consumers have to take more out of their wallets to simply buy the same amount of goods. Also, a lower dollar also can raise the cost of imported goods - with the increase often passed along to consumers.

"I think we're in trouble with the weak dollar," said Minucci, who works in the Capital Markets Finance group at JPMorgan Chase.

The dollar has fallen because of concerns among investors worldwide about the U.S. economy, especially since a cascade of home mortgages has soured in the past year. The dollar's slide itself also has further eroded confidence among some investors who question whether currencies such as the euro will be better able to hold their value in the coming years.

The volatility of the currency markets makes it impossible to predict the dollar's course in 2008, though many observers aren't laying down big bets on its recovery.

"I think the dollar should continue to decline," predicted Laura Ostrander, lead manager for the Columbia Strategic Income Fund.

Consumers are likely to notice a further pullback because it already costs more to stock the refrigerator these days. Since the start of 2007, milk prices are up 23 percent, while the cost of a dozen eggs has risen more than 40 percent.

Overall inflation is running at 5.6 percent, largely because of sharply higher energy costs as oil approached $100 a barrel. The costs of food, clothes and medical care have also increased, though.
Minucci thinks people are too quick to blow off concerns about an anemic dollar as irrelevant to their daily lives.

The dollar has fallen 11 percent against the euro since the start of 2007 and 24 percent against the 13-nation currency since the beginning of 2006.

"I get the feeling that a lot of people are just being oblivious as to what is actually going on around them," Minucci said.

Minucci, who lives in Princeton, N.J., with his wife and two young daughters, sees a link between a weakening currency and dented faith in the U.S. economy.

Sean Hannon, an investment adviser, shares Minucci's concerns and thinks the dollar will continue to decline and put pressure on prices.

"From the U.S. consumer's perspective everything we need is going be more expensive. Our quality of life is slowly going to decline. And it's just sapping the American economy," he said.

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