Weaker dollar may help economy, but mean higher prices.

Byline: Ken Moritsugu

WASHINGTON _ The U.S. dollar's recent fall may prove to be a good thing for the U.S. economy, as long as it doesn't spiral out of control.

While a weaker dollar alone won't turn the economy around, it will help stave off deflation and give the ailing economy a small boost. Those benefits would come at a cost, though: somewhat higher prices for American consumers.

The dollar has fallen nearly 25 percent in the past 16 months against a basket of other major currencies such as the euro, the Japanese yen and the Canadian dollar. Market analysts think the decline isn't over. The euro is trading at about $1.18, up from 86 cents in February 2002. Analysts project the European currency will hit $1.30 sometime next year.

A weaker dollar helps the economy by boosting U.S. exports, because American-made goods become cheaper in foreign currencies. A lower dollar also nudges up prices at home for many imported products, from French wine to German cars. Higher-priced imports push consumers to buy American, though some U.S. firms may raise their prices to take more profit. The end result: more U.S. jobs but higher prices at the checkout counter.

Also, Americans may forgo overseas vacation plans, spending tourism dollars at home instead. A 200-euro hotel room in Paris now costs $238 a night instead of the $172 it cost early last year.

"The Disneyland workers are happy to see you, but you might have preferred to go to Europe for your vacation," said Michael Swanson, a Minneapolis-based senior economist for Wells Fargo bank.