Shipping costs and inflation

• Published in: Journal of international money and finance Vol. 130; p. 102771
• Main Authors: Carrière-Swallow, Yan, Deb, Pragyan, Furceri, Davide, Jiménez, Daniel, Ostry, Jonathan D.
• Format: Journal Article
• Language: English
• Published: Elsevier Ltd 01.02.2023; Published by Elsevier Ltd
• Subjects: Inflation pass-through; Monetary policy; Price shocks; Shipping cost; Q43; Price shocks; E31; Monetary policy; E37; Shipping cost; Inflation pass-through
• ISSN: 0261-5606; 1873-0639
• DOI: 10.1016/j.jimonfin.2022.102771

•Increases in shipping costs are followed by sizable increases in import prices, PPI, headline, and core inflation.•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.•Smaller pass-through in countries with inflation targeting regimes and better-anchored inflation expectations. The Covid-19 pandemic has disrupted global supply chains, leading to shipment delays and soaring shipping costs. We study the impact of 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 changes in shipping costs are instrumented with an indicator of closures of the Suez Canal.