IMPACT OF THE WEAK DOLLAR / THE CONSUMERS’ VIEW : Import Impact: Zilch : Retailers, Analysts Expect Stable Prices
Afraid a falling dollar will mean higher prices for imported consumer goods such as televisions, clothing and cars?
Not necessarily.
Retailers and economists say the day-to-day fluctuation in foreign exchange rates--the price in dollars for the foreign currency needed to buy goods from abroad--has virtually no effect on prices in the short term and is only a minor factor in the long run.
Among the reasons are increased manufacturing of products in the country in which they are sold, competitive pressures against price hikes and the long lead time between orders and sales. Also, possible currency changes are among the factors retailers consider before they set prices.
“We don’t go around the store marking up the prices all the time” when the dollar falls, said Robert August, a sales associate at the Pier 1 Imports store in Hollywood.
Merchandising and pricing decisions are made months before products appear on store shelves, August said. Besides, the store’s most popular items include furniture and clothing from China, India, Indonesia and the Philippines--countries whose currencies are closely linked to the U.S. dollar.
“The dollar has fallen in value very sharply against the Japanese yen, but as far as consumers are concerned, that’s not particularly bad news,” said Robert Brusca, chief economist at Nikko Securities Co. in New York.
On Tuesday, the dollar hit a post-World War II low against the Japanese yen, falling below 100 before closing at 100.35. The greenback climbed slightly on Wednesday, closing at 100.95 yen.
When the dollar falls against foreign currencies, it takes more dollars to buy goods from other countries. That’s supposed to make imports more expensive.
But, said Brusca, “it’s not written in stone that this will affect prices.”
Despite the heavy attention paid to America’s trade deficit with Japan, Japanese products account for only about 12% of American imports, Brusca said.
Historically, Japanese manufacturers have not raised prices when the yen rose, he said. “When the dollar dropped from 220 yen to 150 yen, it didn’t do anything in terms of raising prices, so why should dropping from 120 yen to 100 do anything?”
Japanese producers are loath to raise prices, even if it means cutting into their profits. Some prices of Japanese imported cars have risen, but not in proportion to the rise in the yen.
“Manufacturers don’t want to pass on that cost to us. They’d rather keep their market share,” said Chris Herr, general manager of Adray’s Discount Department Store in Los Angeles, which specializes in electronics equipment such as televisions, VCRs and computers. Although Japanese brands such as Sony, RCA and Hitachi are market leaders, Herr said more and more electronics products are coming from Mexico, Korea and Taiwan, countries where the dollar is stronger.
Japanese manufacturers can shift production to sites in America when costs at home become too expensive for Americans to afford.
“Toyota has been manufacturing more and more cars in the U.S. specifically to hedge against changes in the exchange rate,” said Toyota dealer Kent Hagen. “The action that took place Tuesday or within the last week or two has no impact on our day-to-day business.”
Factors such as the U.S. regulatory environment and the cost of meeting new automobile standards have a much greater impact on the ultimate price of a car than the exchange rate, Hagen said.
Prices for clothing in department stores have exchange rate fluctuations built in, so prices don’t rise once they are on store racks, said Nordstrom spokeswoman Kelly Tormey.
“The vast majority of the goods that we carry are purchased from U.S. vendors,” Tormey said. “If there was some sort of price impact, it would have been absorbed by the vendor by the time the goods get to us.”
Not a Total Loser
Thanks to gains against the Canadian dollar over the past year, the U.S. dollar is up overall on a trade-weighted basis against currencies of the nation’s five major trading partners.
Percent change vs. dollar Percent from share Currency June, ’93 imports Yen -6.7% 12.4% Mark -3.9 4.8 Pound - 2.3 6.0 Canadian dollar + 8.5 21.1 French franc - 2.2 4.8 Total +1.1* 49.1
* Currency changes weighted based on share of imports
Source: Nikko Securities Co.
