Higher Shipping Costs May Lift Asia’s Low Inflation
IMF Blog, December 22, 2021
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- Authors: Yan Carrire-Swallow, Pragyan Deb, Daniel Jimenez
- Published: December 22, 2021
Key findings on Asia’s recent inflation dynamics
- Asia’s inflation has been more moderate compared with other regions, giving central banks room to keep interest rates low and support recovery.
- Among Asia’s emerging economies, a delayed recovery has kept core inflation—which strips out volatile food and energy costs—running at half the rate of peers in other regions.
- Food costs, which make up about one third of the consumer price index baskets, grew 1.6 percent over the past year in Asia, versus 9.1 percent in other regions.
- Asia’s advanced economies experienced lower inflation in part because of more muted energy inflation compared with Europe and the United States.
- Some Asian countries avoided major supply disruptions through pandemic responses (examples cited: Korea’s comprehensive contact tracing and testing; Australia and China’s border closures and localized lockdowns).
Analysis of shipping costs and inflation transmission
- Global shipping costs have surged: one benchmark measure, the Baltic Dry Index, tripled this year through October.
- The analysis finds that large increases in shipping costs boost inflation for 12 months.
- Projection: the persistent impact of high shipping costs could add about 1.5 percentage points to the pace of Asia’s inflation in the second half of 2022.
Outlook and policy implications
- Broad inflationary pressures are expected to eventually moderate globally as supply-demand mismatches ease and stimulus recedes.
- However, in 2022, as the recovery strengthens, high shipping costs could end the benign inflation environment Asia experienced in 2021.
- Policy recommendation: the region’s policymakers must be ready to act; central banks should be prepared to tighten policy if inflation pressures and expectations mount.
Source: "Higher Shipping Costs May Lift Asia’s Low Inflation", IMFBlog, December 22, 2021 — https://www.imf.org/en/blogs/articles/2021/12/22/higher-shipping-costs-may-lift-asias-low-inflation
