The inflationary impact of the higher costs is set
to rise throughout this year and the Ukraine
conflict will fuel inflation further globally
NEW YORK:The coronavirus pandemic’s disruption of global supply chains over the past two years led to shipment delays and soaring shipping costs that have contributed to rising inflation exacerbated by stimulus programmes, the International Monetary Fund has said.
The challenges of the pandemic led to the cost of shipping a container on the world’s transoceanic trade routes increase seven-fold in the 18 months after March 2020, while the cost of shipping bulk commodities rose more, the Washington-based lender said in a paper published on Monday.
The inflationary impact of the higher costs is set to rise throughout this year and the Ukraine conflict will fuel inflation further globally, it said.
Consumer inflation in the US rose to a 40-year high of 7.9 per cent over the past year, propelled by the increasing costs of food, petrol and housing. Britain’s inflation rate surged to a 30-year high of 6.2 per cent in the year to February, adding to pressure on policymakers to protect consumers from the increasing cost of living.
The IMF’s findings are based on studies of the impact of shocks to shipping costs — measured by the Baltic Dry Index (BDI) — on domestic prices from 143 countries between 1992 and 2021. The index was created by the London-based Baltic Exchange and measures the average price paid to transport dry bulk materials across more than 20 shipping routes.
“Spikes in the BDI are followed by sizeable and statistically significant increases in import prices, the producer price index, headline, and core inflation, as well as inflation expectations. The impact is similar in magnitude but more persistent than for shocks to global oil and food prices,” the IMF said.
More than 80 per cent of the world’s traded goods are shipped by sea in 40-foot steel containers and the “shock of the pandemic underscored just how crucial the maritime container trade is to the global economy”, it said.
The fund estimates that the doubling of freight rates leads to a 0.7 percentage point increase in inflation, with the effects peaking after a year and lasting up to 18 months. The increase in shipping costs in 2021 could increase inflation by about 1.5 percentage points in 2022, it said.
