Prices set to soar

With the Australian dollar falling below 93 US cents overnight, overseas travel and online retail prices are expected to jump immediately. Petrol is expected to follow within weeks.

Imported goods, including appliances, TVs and consumer electronics will all rise steadily according to leading retailers. Harvey Norman Holdings (ASX:HVN) boss Gerry Harvey has told The Sydney Morning Herald (SMH) that consumers had three months before imported goods would increase by up to 10%.

“We’re negotiating with manufacturers as we speak,” he said. “Our prices will go up. Everyone’s will.” Mr Harvey said if the dollar dropped below 80 cents compared with the US dollar, consumers should expect a 25 per cent increase. “Suppliers will either move fast or hold out on raising their prices, but regardless, if the dollar goes down, the prices of all imported appliances will go up.”

AMP’s Shane Oliver also told the SMH that travel expenses are expected to rise by 10%.

Retail petrol prices usually lag changes in underlying wholesale prices by around two weeks, so we can expect fuel prices to rise over the next fortnight, as oil and petroleum products are priced in US dollars.

Qantas Airways (ASX:QAN) and Virgin Australia Holdings (ASX:VAH) face massive cost increases as aviation fuel prices rise. That could see travellers paying more for domestic flights as well as an increase in ticket prices for international flights, accommodation and events in overseas countries.

Flight Centre (ASX:FLT) says that the high dollar is unlikely to deter Australians from travelling overseas. Instead, travellers are more likely to cut back on activities when they arrive offshore.

On the plus side, local car makers Holden and Toyota could see surging demand for their vehicles, as imported cars become more expensive. The lower Australian dollar is unlikely to stop Ford from closing local manufacturing operations in 2016, though.

Foolish takeaway

While the lower Australian dollar is good for our exporters, it’s not so good for consumers looking to buy imported products. Low prices enjoyed by Australian consumers for more than 12 months appear to be over.

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Motley Fool writer/analyst Mike King owns shares in Flight Centre.

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