Dollar's drop signals shaky US economy

Consumer prices soared 7%, producer prices 9.7%

Inflation is roaring, and King Dollar is snoring even as interest rates rise. 

The dollar, which has dropped for three straight sessions, has been giving up gains seen after the Federal Reserve has signaled strong interest rate hikes in the coming months. The dollar has dropped to the lowest level against the Euro since November. 

DECEMBER INFLATION BREAKDOWN: WHERE ARE PRICE INCREASES HITTING AMERICANS THE HARDEST?

Ticker Security Last Change Change %
UUP INVESCO DB US DOLLAR INDEX BULLISH FUND - USD ACC 25.69 +0.08 +0.31%
UDN POWERSHARES DB US DOLLAR BEARISH FUND 20.20 -0.04 -0.20%

Consumer prices surged by 7% in December, the highest since 1982, while producer prices jumped 9%, the largest annual increase since data were first calculated in 2010.

The dollar looks to be faltering in what could be an early sign that investors are losing faith in the U.S. economy, and that in and of itself could make our inflation situation worse. 

INFLATION IS DRIVING 'THE GREAT RESIGNATION': FMR. WALMART EXEC

Ticker Security Last Change Change %
USO UNITED STATES OIL FUND L.P. 60.11 -0.67 -1.10%
UNG UNITED STATES NATURAL GAS FUND LP UNIT (POST REV SPLIT) 13.32 +0.22 +1.68%

Oil is moving higher on to falling global oil inventories as well as the falling dollar, and natural gas soared on LNG exports but mainly on frosty cold and freeze-offs.

In this Jan. 7, 2014, file photo, Denver Walker, of Somerset Fuels, makes a heating oil delivery to a home in Jenner Crossroads, Pennsylvania.

In this Jan. 7, 2014, file photo, Denver Walker, of Somerset Fuels, makes a heating oil delivery to a home in Jenner Crossroads, Pennsylvania. (John Rucosky/The Tribune-Democrat via AP, File)

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.

Ticker Security Last Change Change %
GLD SPDR GOLD SHARES TRUST - EUR ACC 172.03 +0.94 +0.55%

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. 

If the dollar is weak, not only will it take more dollars to build back better, but also the incursion of even more government debt to fund programs that would give back growth to the economy is a recipe for not only inflation but also a throwback to the dreaded stagflation.  

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Phil Flynn is senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com.