Shipping costs seen to drive inflation

By Luz Wendy T. Noble, Reporter

THE SURGE in global shipping costs will likely continue causing faster inflation in economies that are reliant on imports until the end of the year, according to the International Monetary Fund (IMF).

In a blog titled “How Soaring Shipping Costs Raise Prices Around the World,” IMF analysts Yan Carrière-Swallow, Pragyan Deb, Davide Furceri, Daniel Jiménez and Jonathan D. Ostry said global shipping costs that have soared during the pandemic due to supply chain disruptions are expected to remain elevated this year.

“Our results suggest the inflationary impact of shipping costs will continue to build through the end of 2022. This will create complicated trade-offs for many central bankers facing increasing inflation and still ample slack in economic activity. Moreover, the war in Ukraine is likely to cause further disruptions to supply chains, which could keep global shipping costs — and their inflationary effects —higher for longer,” they said.

Using data from 143 countries over the past 30 years, the IMF analysts found shipping costs are an important driver of inflation.

“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,” they said.

Countries that import more of what they consume will likely experience faster inflation, they said.

Philippine Chamber of Commerce and Industry President George T. Barcelon said supply chain issues, including soaring shipping costs, are expected to persist throughout 2022. He said this has affected the input cost for both exports and imports.

Mr. Barcelon noted the logistics issue began during the pandemic but is worsening due to the rising global oil prices. Firms are hopeful that the Russia-Ukraine conflict would be resolved soon, easing the pressure on crude oil prices.

“In the next two weeks, we hope fuel prices subside, but the problem on supply chain logistics and the shipping will not go away,” Mr. Barcelon said in a phone call.

Lockdowns in some major cities in China have also aggravated the situation, he said. Port congestion has worsened in cities such as Shenzhen and Hong Kong as Chinese authorities continue to pursue a COVID-zero strategy.

Mr. Barcelon said the supply chain issues and higher shipping costs are a big problem specifically for exporters of perishable goods like fruits.

The IMF study found the increase in shipping costs is reflected in the prices of imported goods at the dock within two months. “But the impact on the prices consumers pay at the cash register builds up more gradually, hitting its peak after 12 months,” IMF analysts said.

Last week, Philippine Liner Shipping Association President Mark Matthew F. Parco has said freight fees have already increased by 25% on average.

Shipping is crucial for an archipelago like the Philippines as about 90% of trade is transported via water, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said.

“This could then have a big impact on inflation, and could most likely hit the transport index,” Mr. Asuncion said in a Viber message.

ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said the surge in shipping cost is a case which proves that inflation pressures are unlikely to be transitory.

“On top of expensive oil, the shortage of tankers is also playing a role in keeping freight costs expensive. This is likely to continue until we get more tankers plying shipping lanes and when we start to see global energy prices slide,” Mr. Mapa said in an e-mail.

The Bangko Sentral ng Pilipinas (BSP) last week raised its inflation forecast for the year to 4.3%, which is already beyond their 2-4% target range, reflecting the surge in oil and commodity prices due to the war in Ukraine.

Headline inflation was steady at 3% for the second straight month in February. March inflation data will be out on April 5.