The weakening of the dollar since 2008 has added 56.5 cents to the price of gasoline, the congressional Joint Economic Committee (JEC) has found. The average price of gasoline would be $3.40 per gallon, instead of the current average price nationally of nearly $4, if the dollar hadn’t declined.
The study of the dollar’s impact was conducted by Republican congressman Kevin Brady of Texas, vice-chair of the bipartisan committee, and Republican staff. They blamed the Federal Reserve and its efforts to spur economic growth for the price increase.
“When the Federal Reserve uses loose money to boost the economy in the short-term, consumers pay the price,” the study said. Because oil is traded in dollars, oil prices increase to compensate for the falling value of the dollar. And the price of gasoline at the pump also increases.
“Since the Fed launched its program of quantitative easing in late November 2008, the value (trade-weighted) of the U.S. dollar has declined 14 percent,” the study calculated. “The declining value of the U.S. dollar has added $17.04 per barrel to the price of oil (Brent Crude),” thus driving up the price of gasoline.
“Arguably there are other factors affecting the price of gasoline than just the price of oil,” according to the study. “[G]iven that oil is the primary input to gasoline and the close correlation [between oil and gasoline prices],” JEC Republicans said it is possible “to determine how much of the current price of gasoline is attributable to the declining value of the dollar.”
They used several yardsticks to measure the dollar’s effect. For instance, while the price of oil has risen 150 percent in the U.S. since the end of 2008, it has gone up only 96 percent in Canada. The Canadian dollar’s value has strengthened in recent years against the U.S dollar.
“In much the same way that one can use the Consumer Price Index to measure the cost of living, one can index the price of oil, an international commodity, to the value of the dollar to measure the impact of the dollar’s declining value on the price of oil,” the study said.
The committee Republicans said the Fed should stick to “one mandate—price stability – to prevent inflation and preserve the value of the U.S. dollar.” By dramatically increasing the money supply to prop up the economy, the Fed had strayed from this mandate, they said.