The International Monetary Fund has linked the current global inflation with the upsurge of the shipping costs.
IMF stated in a newly composed report with the title “the costs of misreading inflation,” that by October, 2021, the indices of the cost of transporting containers by maritime freight had climbed by almost 600%, while the cost of carrying bulk goods by sea had more than tripled.
Based on the report, the demand for shipping intermediate inputs (such as energy and raw materials) by sea surged significantly as manufacturing activity resumed following prolonged COVID-19 lockdowns, the paper claims.
Similarly, logistical challenges, delays caused by pandemic interruptions, and a lack of container equipment significantly restricted shipping capacity.
Additionally, it was mentioned that there were shortage of workers in ports around the world, who were forced to isolate themselves after testing positive for COVID-19, and that truckers and ship personnel were unable to cross international borders due to public health regulations.
Part of the statement reads, “While skyrocketing food and energy prices were making headlines, the surge in shipping costs seemed to pass largely under the radar, despite its potential inflationary impact. Our analysis suggests that a doubling of shipping costs causes inflation to increase by roughly 0.7 percentage points.
“Given the actual increase in global shipping costs during 2021, the IMF estimates that the impact on inflation in 2022 was more than 2 percentage points—a huge effect that few central banks would dismiss.”
According to the IMF, research revealed that the impact of the shipping cost shock on inflation was more long-lasting than the impact of the shock to commodity prices, peaking after around a year and extending up to 18 months.
“By contrast, the impact 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 depends on monetary policy frameworks, particularly central banks’ track record of stabilising prices and anchoring expectations, as well as on more structural features such as geography which affects an economy’s remoteness and dependence on goods shipped by sea.
“Our evidence suggests that the impacts of surging shipping costs are likely to be larger and more persistent in countries with less-anchored inflation expectations and weaker monetary policy frameworks. Lower-income countries and some emerging market economies may be more at risk than advanced economies with established price stability credentials,” Report.