Russia-Ukraine war: Soaring shipping costs may worsen inflation in Nigeria, IMF warns

Agency Report
Agency Report

THE International Monetary Fund has said rising shipping costs as a result of the ongoing war between Russia and Ukraine may worsen inflation in Nigeria, and other nations in the world.

The Washington-based lender disclosed this in a report titled, ‘How soaring shipping costs raise prices around the world.’

It added that the cost of shipping a container on the world’s transoceanic trade routes had increased seven-fold in the 18 months of the year.

It said, “Our analysis predates the war in Ukraine but isn’t isolated from it: the conflict will likely exacerbate global inflation.

“Sea carries more than 80 per cent of the world’s traded goods, most of which sail inside 40-foot-long steel containers stacked by the thousands atop some of the largest vessels ever built. The shock of the pandemic underscored just how crucial the maritime container trade is to the global economy.

“From Shanghai to Rotterdam to Los Angeles, the coronavirus upended supply chains. Ports lacked workers who were homesick. Truck drivers and ship crews couldn’t cross borders because of public health restrictions. Pent-up demand from huge stimulus programs during extended lockdowns overwhelmed the capacity of supply chains. Besides causing delays in getting goods to customers, the cost of getting them there surged”

“As the Chart of the Week shows, the result of those challenges was that the cost of shipping a container on the world’s transoceanic trade routes increased seven-fold in the 18 months following March 2020, while the cost of shipping bulk commodities spiked even more. Our new research shows that the inflationary impact of those higher costs is poised to keep building through the end of this year.”

According to the IMF, the increase in shipping costs observed in 2021 is likely to increase inflation by about 1.5 per cent in 2022.

It added, “Studying data from 143 countries over the past 30 years, we find that shipping costs are an important driver of inflation around the world when freight rates double, inflation picks up by about 0.7 percentage point.

“Most importantly, the effects are quite persistent, peaking after a year and lasting up to 18 months. This implies that the increase in shipping costs observed in 2021 could increase inflation by about 1.5 percentage points in 2022.

“While the pass-through to inflation is less than that associated with fuel or food prices which account for a larger share of consumer purchases, shipping costs are much more volatile. As a result, the contribution in the variation of inflation due to global shipping price changes is quantitatively similar to the variation generated by shocks to the global oil and food prices.”

The IMF said increases in inflation are likely to be witnessed in countries that import more of what they consume, those that are more integrated into global supply chains, landlocked countries, low-income countries, and island states.

According to the global lender, inflation as a result of shipping costs is likely to gain momentum in 2022 and will pose new problems for central banks across the globe.

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