China: Shoppers' buffer vs. weak dollar

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NEW YORK (CNNMoney.com) -- While the greenback gets beaten black and blue against power currencies such as the euro and yen, experts are crediting China's yuan for keeping American consumers from paying significantly more for a wide range of products.

China is America's largest source of consumer products, accounting last year for a sizeable 14% of all U.S. imports, which mostly included toys, clothing, footwear, furniture and electronics.

Typically, weakness in the dollar makes imports into the United States more expensive.

And given that the U.S. imported nearly $500 billion in consumer products last year, the fear has been that it's only a matter of time until retailers jack up prices to offset their cost of buying goods from overseas.

But because China's currency is more tied to the dollar than other currencies - although not as much as it used to be - it is "acting as a buffer" for consumers against rising retail prices, said Scott Hoyt, director of consumer economics with Moody's Economy.com.

Year-to-date, the yuan, which is now linked to a basket of currencies in which the dollar plays an important part, has appreciated about 3% against the U.S. currency.

Hong Kong, another important source of imports for the U.S., still has its currency pegged to the dollar. That means both currencies move in sync and therefore the dollar's weakness won't make Hong Kong imports more expensive.

By comparison, the euro has surged 18.2%, the yen has jumped 20% and the Swiss franc has risen 22.5% against the dollar over the past 12 months.

Consequently, this has made imported designer brands such as Louis Vuitton, Prada and Burberry more expensive for Americans.

But China's currency quirk isn't the only thing keeping consumer prices rise under control.

Mass market retailers such as Wal-Mart (WMT, Fortune 500) and Target (TGT, Fortune 500) have been gunshy about raising prices on everyday products at a time when they are already facing sluggish retail sales amid weakening consumer demand.

In this environment, Hoyt said suppliers and retailers would prefer to absorb any prices increases themselves rather than pass them on to consumers.

While food and gasoline prices have been climbing for various reasons, recent government reports show that U.S. households aren't paying much more for other types of goods.

"In the U.S., between 30% to 50% of the cost of goods is determined by marketing, shipping and storage costs," said Marc Chandler, global head of currency strategy with Brown Brothers Harriman and associate professor at New York University. "The dollar only has a marginal impact on prices and spending."

But at least one analyst remains fearful of the dollar's decline.

"A weak dollar is a factor for American consumers to the extent that it feeds inflation in consumer prices," said Frank Badillo, senior retail economist with consulting firm TNS Retail Forward.

Badillo said consumers are getting a break - for now.

"Longer term, unless the economy and the dollar improve, inflation will spread to electronics, toys and clothes," he said. "Higher prices will be passed on to consumers."