IMF links global inflation to rising shipping costs
The current global inflationary pressure has been ascribed by the International Monetary Fund to a substantial spike in shipping costs.
The lender stated in a new research titled "the costs of misreading inflation" that by October 2021, indices of the cost of transporting containers by maritime freight had climbed by more than 600% from pre-pandemic levels, while the cost of shipping bulk goods by sea had more than tripled.
According to the report, once manufacturing activity resumed after the protracted COVID-19 lockdowns, demand for shipping intermediate inputs (such as energy and raw materials) by sea surged dramatically.
Simultaneously, shipping capacity was severely hampered by logistical challenges and bottlenecks caused by pandemic interruptions and container equipment shortages.
It went on to say that ports around the world were short of personnel, forcing them to self-isolate after testing positive for COVID-19, and that public health restrictions stopped truck drivers and ship crews from crossing borders.
"While increasing food and energy prices made headlines, the spike in shipping costs seemed to fly mostly under the radar, despite its potential inflationary impact," it said in part. According to our calculations, increasing delivery costs raises inflation by about 0.7 percentage points.
"Given the real rise in global shipping costs in 2021, the IMF calculates that the impact on inflation in 2022 will be more than 2 percentage points—a significant factor that few central banks would disregard."
According to the global lender, the effect of transportation cost shocks on inflation was longer-lasting than the effects of commodity price shocks, peaking after around a year and extending up to 18 months.
"By contrast, the influence of global oil prices on consumer price inflation peaks after only two months.
"Of course, this average result varies across economies and regions, and it is influenced by monetary policy frameworks, particularly central banks' track record of stabilizing prices and anchoring expectations, as well as more structural features such as geography (which affects an economy's remoteness and reliance on goods shipped by sea)," says the author.
"Our findings implies that the implications of soaring shipping costs are likely to be higher and more permanent in nations with less-anchored inflation expectations and weaker monetary policy frameworks. Lower-income countries and some emerging market economies may be more vulnerable than mature economies with proven price stability credentials, according to the statement.
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