Shipping Costs and Inflation

Author/Editor:

Yan Carriere-Swallow ; Pragyan Deb ; Davide Furceri ; Daniel Jimenez ; Jonathan David Ostry

Publication Date:

March 25, 2022

Electronic Access:

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

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.

Series:

Working Paper No. 2022/061

Frequency:

regular

English

Publication Date:

March 25, 2022

ISBN/ISSN:

9798400204685/1018-5941

Stock No:

WPIEA2022061

Pages:

49

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