Soaring Shipping Costs could worsen Global Inflation – IMF

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CEM REPORT | Global cost of shipping has tremendous impact on global inflation as IMF 30 years of study have shown. The disruption to trade caused by the pandemic is more vicious in the cost of shipping which according to IMF increased 7-fold. Impact of this increase is expected to cause rising global inflation till the end of 2022. This is what IMF weekly chart have shown.

“As the Chart of the Week shows, the result of those challenges (caused by the pandemic) 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.

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“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”; IMF wrote.

While economies are battling the wave of inflation as a result of the disruptions caused by the pandemic, the Russian invasion of Ukraine is further exacerbating cost of trade. Russian cut back on diesel refining has caused a global shortage of the fuel used by vessels to carry goods from one country to the other. With this, global inflationary pressure will continue farther than 2022.

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