Shipping Costs and Inflation

IMF Working Papers, March 25, 2022

Source details

Authors: Yan Carriere-Swallow, Pragyan Deb, Davide Furceri, Daniel Jimenez, Jonathan David Ostry
Published: March 25, 2022
Series: IMF Working Papers
DOI: https://doi.org/10.5089/9798400204685.001

Study period: 1992-2021.
Global shipping costs measured by the Baltic Dry Index (BDI).
Sample: large panel of countries (unspecified number in source text).
Research question: impact of shocks to global shipping costs on domestic prices and inflation-related measures.

Spikes in the BDI are followed by sizable and statistically significant increases in:
- import prices,
- PPI,
- headline inflation,
- core inflation,
- inflation expectations.
The impact of BDI shocks is similar in magnitude but more persistent than shocks to global oil and food prices.
Effects are more muted in countries with:
- smaller shares of imports in domestic consumption,
- inflation targeting regimes,
- better anchored inflation expectations.
Results are robust to several checks, including an instrumental variables approach that instruments changes in shipping costs with an indicator of closures of the Suez Canal.

Shipping cost shocks can materially raise domestic inflation and inflation expectations, implying central banks and fiscal authorities should account for global shipping cost volatility in inflation assessments.
Policies that reduce import dependence, strengthen inflation-anchoring (e.g., effective inflation targeting), or improve supply-chain resilience can mitigate passthrough from shipping-cost shocks to domestic inflation.

Primary shipping-cost measure: Baltic Dry Index (BDI).
Robustness includes an instrumental variables approach using Suez Canal closure indicators to instrument changes in shipping costs.