Surging shipping costs will continue to fuel global inflation in 2022, a new study by the International Monetary Fund (IMF) has found. More than 80% of the world’s traded goods move across the ocean. There is no way to do without shipping and so its costs have to be absorbed across supply and production chains.

“The Covid-19 pandemic has disrupted global supply chains, leading to shipment delays and soaring shipping costs. We study the impact of shocks to global shipping costs — measured by the Baltic Dry Index (BDI) — on domestic prices for a large panel of countries during the period 1992-2021. We find that spikes in the BDI are followed by sizable and statistically significant increases in import prices, PPI [Producer Price Index], headline and core inflation, as well as inflation expectations,” the study found.

“The impact is similar in magnitude but more persistent than for shocks to global oil and food prices.”

Shipping costs in the first 18 months of the Covid-19 pandemic surged sevenfold, the IMF said, which means the global economy needs to brace itself for significant inflationary pressures. And the study was conducted before the war in Ukraine, which will exacerbate the situation.

“The results, based on a sample of 46 countries from February 1992 to December 2021, suggest that increases in global shipping costs have a non-negligible, persistent and statistically significant effect on domestic inflation,” the study said.

A doubling of freight rates basically sees inflation accelerate by 0.7 percentage points. But some countries are more vulnerable than others to the aftershocks and second-round effects. These include land-locked countries, low-income countries and island states.

“The effects are more muted in countries where imports make up a smaller share of domestic consumption, and those with inflation-targeting regimes and better anchored inflation expectations,” the study said.  

South Africa imports a lot of products for consumption and oil imports are currently a key driver of domestic inflation. But the central bank is a disciplined inflation targeter — with a 3% to 6% target range — and this helps to anchor inflation expectations. Consumer inflation is currently running at 5.7% in South Africa and the combination of shipping costs and surging oil and food prices is going to keep inflation bubbling for some time. At least the central bank stands ready to contain such pressures as it embarks on a tightening cycle in line with its peers.

After years of ultralow and even negative interest rates and scant inflation, the global economy appears to be abandoning the “new normal” in favour of the “old normal” of higher rates and faster inflation. A lot of that stems from shipping costs. DM168

This story first appeared in our weekly Daily Maverick 168 newspaper which is available for R25 at Pick n Pay, Exclusive Books and airport bookstores. For your nearest stockist, please click here.