Shipping Costs and Inflation

Shipping Costs and Inflation
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Volume/Issue: Volume 2022 Issue 061
Publication date: March 2022
ISBN: 9798400206375
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Topics covered in this book

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Inflation , Economics- Macroeconomics , Economics / General , Price shocks , shipping cost , inflation pass-through , monetary policy , , inflation expectation , import intensity , import share , Inflation , Import prices , Oil prices , Output gap , Producer prices , Global , Baltics

Summary

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, headline, and core inflation, as well as inflation expectations. The impact is similar in magnitude but more persistent than for shocks to global oil and food prices. 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 results are robust to several checks, including an instrumental variables approach in which we instrument changes in shipping costs with an indicator of closures of the Suez Canal.