The Advantage Of A Stronger Currency
What I found remarkable in the Bloomberg news story about it was this formulation:
"German companies have increased efficiency and reduced labor costs, helping them remain competitive even after the euro gained 17 percent against the dollar in the past year and oil rose above $100 a barrel."
But why should oil for German businesses be calculated in dollars? Wouldn't it be more accurate to calculate in euros? And in euro terms, oil has risen a lot less than in dollar terms. Oil now cost €65 per barrel. While that is too relatively high this increase is a lot lower than the dollar increase. For example, when oil temporarily peaked in August 2006, it was priced at $78 per barrel, or €61.5 per barrel. Since then, the dollar price is up 30% in dollar terms, but only 5.5% in euro terms. Because of the euro strength, the oil shock is quite mild for Europeans. Here is a graph for The Economist's commodity price index which illustrates a similar point. Much of the commodity price boom clearly reflects dollar weakness, meaning that commodities are relatively much cheaper in euros.