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The Dollar Drops As Inflation Rises: Here’s What That Means For Your Wallet
In this photo illustration a nitizen holds US Dollar banknotes. On Wednesday, January 12, 2021, in Edmonton, Alberta, Canada.
Artur Widak/NurPhoto via Getty Images

As inflation in the United States reaches record highs, investors are losing confidence in the dollar.

On Wednesday, the Bureau of Labor Statistics reported that in December consumer prices rose by 7% over the previous year — the highest rate in roughly 40 years. Likewise, “real average hourly earnings” — which consider the effect of inflation — decreased by 2.4% from December 2020 to December 2021, starkly cutting the purchasing power of American consumers.

Following the news, the ICE U.S. Dollar Index (DXY) — a measure of the currency against other global reserve assets — hit a two-month low, signaling a weakened dollar. 

What does this phenomenon imply for Americans enduring a rough-and-tumble post-COVID economy? As energy analyst and Fox Business contributor Phil Flynn explained:

The most direct correlation in that would be the price of commodities. On the global market, almost all major commodities from energy, agriculture and metals are priced in dollars. If the dollar falters then it would take more dollars to buy the same amount of goods. That means that this blockbuster increase in consumer prices might look small in the future.

In other words, Americans will see further erosion to their standard of living. However, a weak dollar may provoke monetary tightening from the Federal Reserve. Flynn continued:

If the dollar does falter, then the Federal Reserve may be forced to take even more drastic actions to slow the rise. Instead of four or five rate hikes of a quarter-point, policymakers may be forced to shock and awe the market with a series of a full-point or larger increases to protect the integrity of the dollar. 

This potential emerging crisis with inflation and confidence in the dollar shows that printing money and runaway government spending has consequences. It also has big consequences for President Biden’s “build back better” aspirations. 

Despite these concerns, progressive Democrats are sticking dogmatically to Biden’s landmark spending proposal.

“We fight inflation by lowering costs for working people,” Rep. Pramila Jayapal (D-WA) tweeted on Wednesday. “And we lower costs by passing Build Back Better.”

“Families are struggling with soaring prices on everyday essentials like groceries, gas, housing, and health care,” Sen. Elizabeth Warren (D-MA) added. “Meanwhile, big corporations are making record profits. We need to pass #BuildBackBetter and boost competition to lower prices.”

“The Build Back Better act addresses inflation by lowering child care, energy, housing and healthcare costs for everyday Americans,” Rep. Hakeem Jeffries (D-NY) said. “Republicans talk about inflation. House Dems are doing something about it.”

Meanwhile, the Biden administration argued on Wednesday that it is “making progress” on inflation. 

“Today’s report—which shows a meaningful reduction in headline inflation over last month, with gas prices and food prices falling—demonstrates that we are making progress in slowing the rate of price increases,” Biden said in a statement. “At the same time, this report underscores that we still have more work to do, with price increases still too high and squeezing family budgets.”

“Inflation is a global challenge, appearing in virtually every developed nation as it emerges from the pandemic economic slump,” Biden continued. “America is fortunate that we have one of the fastest growing economies—thanks in part to the American Rescue Plan—which enables us to address price increases and maintain strong, sustainable economic growth. That is my goal and I am focused on reaching it every day.”

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