IMF warns global inflation may also be exacerbated by the Russian-Ukrainian war
By Jeph Ajobaju, Chief Copy Editor
Rising shipping costs may further increase inflation worldwide, the sea being the giant whale that bears on its back more than 80 per cent of global goods transport, says International Monetary Fund (IMF).
Most global commodities are packed into 40-foot containers stacked by the thousands atop the world’s largest cargo ships – like the 202-ft Ever Ace – that traverse the Indian Ocean and the Pacific to the Atlantic all year.
An IMF blog post on “How Soaring Shipping Costs Raise Prices Around the World” said the cost of shipping a container on transoceanic trade routes soared sevenfold in the 18 months after March 2020.
The cost of carrying bulk commodities increased even more.
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Inflationary impact of higher costs
“Our new research shows that the inflationary impact of those higher costs is poised to keep building through the end of this year.
“Our analysis predates the war in Ukraine but isn’t isolated from it: the conflict will likely exacerbate global inflation,” IMF said, per reporting by Nairametrics.
The IMF studied data from 143 countries over the past 30 years and discovered 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.”
Monetary policy to mitigate inflation
But the IMF, a lender based in Washington, said a strong monetary policy stance could mitigate inflation.
“A strong and credible monetary policy framework can play a role in mitigating the second-round effects from import prices and inflation.
“Our analysis shows that keeping inflation expectations well-anchored is key to containing the effect of soaring shipping costs on consumer prices, particularly core measures that exclude fuel and food.”