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U.S. consumers could cash in on falling euro

So, let’s skip right to the most important question: When will American consumers start seeing some bargains on European imports?
/ Source: The Big Money

The Greek crisis contagion has pushed the euro into freefall for months now. Every day seems to mark a new low; many analysts predict it will drop below $1.20 in the near future, and some more bearish currency experts are even predicting parity with the dollar. The dramatic decline of one of the developed world’s strongest currencies raises conjecture about everything from the perceived risk of sovereign debt to the long-term viability of the European Union as a single economic entity.

So, let’s skip right to the most important question: When will American consumers start seeing some bargains on European imports?

At least on paper, imported European goods should be about the cheapest in the euro’s existence. When the currency was virtually introduced in January 1999 — it wasn’t used in physical transactions until 2002 — it was at roughly $1.15. After flirting with dollar parity a couple of times that year, its value dropped below that of the greenback just over a year later and stayed there until mid-2002. From then on, the euro went on a long, more-or-less steady climb, culminating in July 2008, when it peaked at around $1.60. Unfortunately, several things stand in the way of a straight flow-through of currency fluctuations, experts say. The first is that many companies elect to let their own profit margins float rather than subject customers to ever-shifting prices. These companies, while they might have been pinched over the last few years, will now reap a relative windfall if they keep prices static. In fact, many of them may hold prices steady, at least temporarily, to make up ground lost when the euro soared a couple of years ago. Markups by middlemen and retailers also will absorb some of the widening discrepancy between currencies.

One other mitigating factor is that most commodities — including petroleum, cotton, and steel — are priced in dollars. If the rest of the global economy recovers and commodity prices climb while the euro remains weak, European manufacturers will likely face a squeeze and pass this increase onto the consumer, which could erase most of an exchange-rate discount.

There’s also the issue of shipping goods. While the price of oil has been taking a beating lately, if the rest of the global economy recovers while the euro remains weak, oil is sure to rise, making transportation costs relatively higher. (Also, any products made from petroleum derivatives will also be subject to higher production costs.)

American consumers looking for a bargain will get the most bang for their buck if they travel to Eurozone nations. Hotel stays, local transit, and everything from Chianti Classico to Chanel purchased while abroad will be 15 percent cheaper than it would have been at the beginning of the year.

Those not planning on jetting to Paris or Prague might have to wait a while before the “default-panic discount” makes its way to them. Trade experts say evidence of the sliding euro will surface first in consumables with the shortest shelf life. Imported foodstuffs like prosciutto de parma, parmigiano reggiano, olive oil, truffles, and other gourmet goodies have a fast turnaround time; shoppers here could notice the deflated euro’s impact in a month or less for perishable items like cheese. Wine will take a little longer, but by the time new vintages are released in the fall, buyers can expect to find deals.

Then there’s fashion. Sartorial trends give this sector a self-imposed shelf life; new products are turned out seasonally, with a production timeline of eight to 12 months for mass-produced clothes. Fashion, especially at the high end, is a very labor-intensive practice, which will indirectly benefit American customers. All of those cobblers and seamstresses being paid in euros will bring down the price of the finished product.

When it comes to durable goods, the equation doesn’t favor American shoppers as much. Things like cars also have a much longer production cycle than soft goods, so the euro would have to remain in the doldrums for a very long time before any trickle-down would take place.