![]() ![]() ![]() We also estimate specifications that interact the shipping price shock with a number of relevant country characteristics. ![]() Island states are most affected, suffering an increase in inflation that is twice as large as the baseline panel estimate. Lower-income countries tend to experience larger increases in inflation than emerging-market or advanced economies. To probe this heterogeneity, we consider an augmented sample of 143 economies. ![]() The impact of shipping costs on inflation is widespread but heterogeneous across countries. Cross-country heterogeneity and role of country characteristics The IV estimation results confirm the size of the responses of core and headline inflation, as well as producer and import prices, following a rise in global shipping costs provoked by a disruption of this nature, and suggest even more persistent impacts than the baseline estimates. They are also relevant instruments, because approximately 30% of global container traffic transits through the Canal, and alternative sailing routes are costly, adding thousands of miles and weeks of delays to itineraries. The four blockages of the canal in our sample are related to ship captain errors or to weather events, and are thus plausibly exogenous to global demand conditions. To ensure that our reduced-form estimates are not driven by swings in global demand, we undertake an instrumental variables (IV) estimation using closures of the Suez Canal as the instrument. With all the discussion in 2021 about whether the inflationary shock was likely to be transitory or not, a greater focus on the shipping-cost angle could have acted as a canary in the inflation coal mine, warning about persistent inflationary pressure (Ostry 2022). Shipping cost shocks, therefore, generate more persistent effects on headline inflation than shocks to oil and food prices. Increases in global food prices raise headline inflation a bit more gradually, with an impact that peaks after about seven months. Increases in global oil prices lead to a swift rise in headline consumer price inflation, with a peak effect after only two months. We compare these pass-through estimates to those from global oil or food prices. The result is that the impact of higher shipping costs on headline inflation peaks after about 12 months, and fades thereafter. The rise in consumer prices, however, is more gradual and protracted, reflecting transmission through the domestic supply chain by importers, producers, intermediaries, and eventually retailers. After a further two months, the shipping-cost shock is passed through to local producer prices. When shipping costs rise, the local-currency price of imported goods goes up almost immediately, with 90% of the increase transmitted within two months. The actual surge in global shipping costs seen during 2021 added about 2 percentage points to global inflation in 2022.įigure 2 Response of headline inflation following increase in shipping costs Indeed, a one standard deviation increase in shipping costs has a similar inflationary impact to a one standard deviation increase in global oil or food prices, but the impact of shipping costs on inflation is more persistent. Given how volatile shipping costs are in the data, this result is economically significant. We find that when global shipping costs double, headline CPI inflation increases by about 0.7 percentage points. In our paper, we estimate the pass-through from global shipping costs to inflation in a large sample of 46 economies. 2020), their impact on consumer prices has received limited attention in the literature. While freight costs have long been recognised to be an important determinant of the patterns of trade (Anderson and van Wincoop 2004, Hummels, 2007, Brancaccio et al. Source: Bloomberg LP and IMF staff calculations. ![]()
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