One reason inflation has exceeded my estimates earlier this year is import prices. Since M2 2020, the price of goods imported from China has risen 5.3% after falling 5.8% in the first six years. During the same period, the dollar depreciated by 9.4%, and the exchange rate pass-through coefficient was 0.56.
This is the coefficient not far from me 2015 estimate of 0.45 . By the end of 2021, China’s imports of goods accounted for about 16.5% of total imports of goods and services.
If the renminbi weakens against the dollar in 2022 (as some have predicted, as China tries to support growth through exports), a rising dollar will put deflationary pressure on the US. (Of course, if there is production Disruption in China due to covid, that would certainly upset that prediction).
