Higher shipping cost is fueling inflation which is on track to rise through the end of 2022 while the Russia-Ukraine conflict may exacerbate the situation, the International Monetary Fund (IMF) said in a report on Monday.
Delivery of goods is being delayed due to tangled supply chains as docks around the world struggle with labor shortage caused by the COVID-19 pandemic containment measures.
“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,” IMF analysts said in the report.
As much as 80 percent of all goods traded internationally are carried by sea. The cost of shipping a 40-foot container (FEU) unit hit a record high above $11,000 last September before falling to the current $9,430, the Freightos FBX index showed. The same container cost just $1,300 before the pandemic.
The cost of shipping a container across the ocean is set to push up inflation by about 1.5 percentage points in 2022, according to the IMF report.
“Our analysis shows that keeping inflation expectations well-anchored is key to containing the effect of soaring shipping costs on consumer prices,” the report said.
Inflation within the euro zone is running at 5.8 percent, well above the European Central Banks’s 2 percent target. The U.S. Federal Reserve policymakers pledged last week to take more aggressive action to bring down inflation which is at three times of its 2 percent target.