Below is the latest chart of the Financology Dollar Index. As a reminder, the FDI represents the overall market value of the USD dollar, not in terms of other currencies nor just in terms of US domestic consumer goods and services, but in terms of the most fundamental unit of value, human time.
The FDI is not intrinsically predictive, but consumer prices lag, so it does manifestly lead trends in reported consumer price inflation. It is analogous to conventional charts of the price of any other security or commodity, except it plots value. A chart of the price of USD in USD would be flat line. The FDI is a chart of the value of USD.
The increase seen in recent months is the main reason behind sinking asset prices. Even if asset values remain the same, and the dollar increases in value, it takes fewer dollars to buy the same assets. Prices decline.
It also has implications for consumer prices. Because of their variable inputs, consumer prices reflect multiple lags in changes in the value of the dollar. Some are reflected almost immediately, others take years. The consumer price inflation we’re seeing now is the result of declines in the value of the dollar that have taken place over the past several years.
This also means that the recent increases are in the pipeline. Unless they are reversed, consumer price inflation will begin to abate, a little at a time, over the coming years. If they accelerate, consumer price inflation will noticeably decline within months. If they are reversed – if the FDI again turns lower – consumer price inflation will accelerate.