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Home World As the dollar soars, it spreads pain globally | Business and Economy News

As the dollar soars, it spreads pain globally | Business and Economy News

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The cost of living in Cairo has become so high that security guard Mustafa Gamal sent his wife and one-year-old daughter to live with their parents in a village 70 miles (112 km) south of the Egyptian capital to save money. I had to let it go.

Gamal, 28, stayed home, working two jobs while sharing an apartment with other young people and eliminating meat from her diet. “Everything has doubled his price,” he says. “There was no alternative.”

People around the world share Gamal’s pain and frustration. An auto parts dealer in Nairobi, Kenya, a baby clothes distributor in Istanbul, Turkey, and a wine importer in Manchester, England share the same complaint. For daily necessities and services.

This is exacerbating financial difficulties at a time when families are facing food and energy crises related to Russia’s invasion of Ukraine.

“A strong dollar makes a bad situation in the world worse,” said Eswar Prasad, a professor of trade policy at Cornell University. I am concerned that it is more likely to happen.

The dollar has risen 18% this year, hitting a 20-year high last month, according to the ICE USD Index, a benchmark that measures the dollar against a basket of major currencies.

The reason for the strong dollar is no mystery. To combat skyrocketing US inflation, the Federal Reserve has raised its benchmark short-term interest rate five times this year, suggesting further increases are likely. This raised interest rates on a wide range of US government and corporate bonds, attracting investors and boosting the US currency.

Most other currencies are very weak by comparison, especially in poorer countries. The Indian rupee has fallen nearly 10% against the dollar this year, the Egyptian pound has fallen 20% and the Turkish lira has fallen an astonishing 28%.

Celal Kaleli, 60, sells infant clothing and diaper bags in Istanbul. The lira is needed to buy dollar-denominated imported zippers and liners, so prices have to be raised for Turkish customers who are struggling to pay in their heavily depreciated local currency.

“We are waiting for the New Year,” he says. “We will look into our finances and scale down accordingly. There is nothing else we can do.”

Rich countries are no exception. In Europe, which was already headed for recession amid soaring energy prices, the euro fell below $1 for the first time in 20 years and the British pound plunged 18% from his year earlier.

The pound recently flirted at dollar parity after new UK Prime Minister Liz Truss announced huge tax cuts that disrupted financial markets and led to the dismissal of her Treasury Secretary.

“Bad news” for the global economy

A salesman waits for a customer at a used car parts warehouse in the industrial area of ​​Nairobi, the capital of Kenya.Auto parts are displayed on the counter behind it
A rising dollar is causing pain abroad in many ways, including making imports into the country more expensive [File: Brian Inganga/AP Photo]

Countries usually benefit to some extent from currency depreciation. This is because products are cheaper and more competitive abroad. For now, however, economic growth is spilling over almost everywhere, limiting the gains from increased exports.

A rising dollar is causing pain abroad in several ways.

  • This makes imports from other countries more expensive, adding to existing inflationary pressures.
  • It puts pressure on businesses, consumers, and governments that owe dollars. This is because you will need more local currency to convert to dollars when making loan payments.
  • Central banks in other countries should raise interest rates to support their currencies and keep money from flowing across borders. But these interest rate hikes will dampen economic growth and push up unemployment.

Simply put, “a strong dollar is bad news for the global economy,” says Ariane Curtis of Capital Economics. “This is another reason why we expect the global economy to slip into recession next year.”

Businesses are struggling and customers are disgruntled in a rundown area of ​​Nairobi known for repairing cars and selling auto parts. With Kenya’s currency depreciating 6% this year, prices for fuel and imported spare parts have soared, prompting some people to ditch their cars and take public transport.

“This was a disaster,” says Michael Gachie, purchasing manager at Shamas Auto Parts. “Customers complain a lot.”

2022 will be uniquely painful

A man holding banknotes as he exits a currency exchange shop in Istanbul, Turkey
At a time when prices are already high against the backdrop of the war in Ukraine, a strong US dollar is uniquely painful as it adds to inflationary pressures. [File: Khalil Hamra/AP Photo]

Currency volatility has caused economic pain all over the world many times before. For example, during the Asian financial crisis in the late 1990s, Indonesian companies borrowed heavily in dollars during the boom and were wiped out when the Indonesian rupiah crashed against the dollar.

A few years ago, the plunging peso brought similar pain to Mexican businesses and consumers.

But a stronger dollar in 2022 will come with its own set of pains. Global inflationary pressures are building at a time when prices are already skyrocketing. War-induced disruptions to energy and agricultural markets in Ukraine have magnified supply constraints resulting from the COVID-19 recession and recovery.

In Manila, Raymond Manaog, 29, drives a colorful Filipino minibus known as a jeepney, complaining that inflation, especially rising diesel prices, is forcing him to work more to make ends meet. there is

“What do I have to do to make enough money for my daily expenses,” he says. “He used to go five times on the route, now he goes six.”

In India’s capital, New Delhi, Ravindra Mehta has been a thriving broker for American almond and pistachio exporters for decades. However, the record depreciation of the rupee, along with rising raw material and transportation costs, has made nuts much more expensive for Indian consumers.

In August, India imported 400 containers of almonds, down from 1,250 containers a year earlier, Mehta said.

“When consumers don’t buy, it affects the entire supply chain, including people like me,” he says.

Kingsland Drinks, one of the UK’s largest wine bottlers, was already weighed down by rising transportation costs for containers, bottles, caps and energy. A soaring dollar is now driving up the price of wine purchased from US vineyards, as well as from Chile and Argentina, which rely on the dollar for global trade, as well as many other countries.

Kingsland offsets some of its currency costs by entering into contracts to buy dollars at a fixed price. At some point, however, “those hedges will have to run out and reflect the reality of the pound’s depreciation against the US dollar,” says Ed Baker, the company’s managing director.

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原文: Soon customers will have to pay more for wine.

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