NEW YORK (AP) — A subtle yet impactful force is contributing to rising costs for everything from summer getaways to weekly grocery shopping: the declining U.S. dollar.
Since President Donald Trump took office, the dollar has dropped about 10% against major currencies, which some believe is heightening concerns about affordability for many Americans.
“It’s like a hidden tax,” explained Thomas Savidge, an economist at the American Economic Institute. “The purchasing power of your dollar keeps shrinking.”
Let’s delve into the current state of the dollar and what it could mean for you.
Historic Dollar Decline
The U.S. dollar index compares the dollar to other major currencies. This drop represents the first notable decline in six months. While not catastrophic, the index remains roughly 10% lower than at the beginning of Trump’s term.
A strong dollar typically makes imported goods more affordable, helping to manage inflation. Conversely, a weak dollar can increase prices for foreign goods while boosting U.S. exports.
U.S. presidents have historically advocated for a robust dollar, although Trump has suggested that a strong dollar could be detrimental to the country, arguing that a weaker dollar aids American businesses. His stance, like many of his opinions, has become increasingly vocal.
“I earn more with a weaker dollar,” he noted last year, reflecting his preference for a softer currency.
Large Multinational Companies Benefit
Trump isn’t the only one reaping the rewards of a weaker dollar.
Discussions during corporate earnings calls have highlighted how the decline has benefited companies ranging from Philip Morris to Coca-Cola, with executives using terms like “favorable currency effects” to describe the positive impact on their earnings.
“In many cases, a weaker dollar is advantageous,” said Elie Maalouf, CEO of InterContinental Hotels, during a February call that reported increased profits and revenue.
For major multinational firms, a weaker dollar can enhance sales of cheaper products abroad. However, most U.S. companies operate domestically, facing different challenges—especially those relying on imported goods.
For instance, Travis Madeira, who co-founded the lobster shipping business Lobster Boys, sells primarily to American customers, making his situation distinct from competitors who export more. “Exporters will benefit from a lower dollar,” Madeira observed. He faces rising costs for importing feed and Canadian lobsters. “This situation will affect us to some extent.”
Small Businesses Will Be Hit Hard
Even companies based outside the U.S. can feel the pinch from a declining dollar. While larger firms often hedge against currency fluctuations to protect their interests, smaller businesses are typically more vulnerable.
David Navagio, CEO of Jentel in Pennsylvania, produces medical supplies across locations in Brazil, Paraguay, Canada, New Zealand, and the U.K. As the dollar lost value in those areas, Jentel’s costs surged.
The company has had to raise some prices to account for currency shifts, compounded by challenges like rising fuel prices linked to tariffs and geopolitical issues. “These weren’t concerns just a year ago,” he remarked. “And that definitely hurts consumers.”
Other Currencies Also Rise
For American consumers, the effects of a weaker dollar are particularly noticeable during international travel or when buying from foreign sellers.
For instance, when going into Mexico—Americans’ top overseas destination—the dollar is about 16% weaker against the peso compared to earlier this year. Other currencies, such as the Swiss franc, South African rand, Danish krone, Swedish krona, and euro, have also seen declines of roughly 10% to 17%.
While there are implications for imported goods in the U.S., evaluating these impacts is more complex. Economists estimate that only about 5% to 10% of currency depreciation affects consumers in developed nations.
Yet, if prices are already influenced by other factors, this adds further strain.
Take coffee, for example, which has seen one of the most significant price surges recently. Brazil, as the leading supplier of coffee to the U.S., saw the dollar decline around 13% against its currency. Although currency fluctuations may only partially contribute to rising coffee prices, they can cumulatively add up. Over the past year, coffee prices in the U.S. have reportedly increased by nearly 19%, according to government statistics.
Looking Forward to Further Developments
Currency values are always in flux. While the recent drop in the dollar’s value is noteworthy, it has experienced even lower levels during the presidencies of Trump’s predecessors since the dollar index began in 1973 under Nixon.
Kenneth Rogoff, a Harvard economist and former Chief Economist of the International Monetary Fund, noted that he fears “many of President Trump’s policies are harmful to the dollar,” but suggests a decline was likely regardless of leadership.
“The dollar has been riding high for the past 15 years,” he noted. “I’d argue it remains significantly overvalued and could fall another 15% in the next five to six years.”
So, what does this signal for American consumers? According to Rogoff, commodity prices are expected to rise, particularly driven by the implications of the conflict in Iran on fuel prices.
“Regardless of what happens with the dollar, prices are bound to climb,” he stated.
