The surge in shipping costs during the pandemic served as a clear indicator of the impending global inflation spike, and the recent sharp decline in maritime-freight expenses will help alleviate price pressures, according to a former International Monetary Fund (IMF) official.
Jonathan Ostry, a professor at Georgetown University and former acting director of the IMF's Asia and Pacific department, highlighted the link between shipping costs and prices. He stated that the doubling of maritime-transport expenses led to an approximate 0.7 percentage point increase in inflation. The significant impact of rising shipping costs on inflation in 2022, estimated to be over 2 percentage points, was often overlooked compared to the attention given to soaring food and energy prices.
Ostry acknowledged that some inflation drivers, such as supply chain disruptions and commodity-price increases resulting from geopolitical events, were unforeseeable or challenging to predict. However, policymakers should be held accountable for overlooking known inflation drivers that indicated persistent price pressures. The delay in addressing these factors may necessitate more aggressive interest rate hikes by central banks, potentially increasing the risk of a recession and adverse global effects.
The cost of shipping a container from Asia to the U.S. reached its peak in March 2021 but has since dropped significantly, with the lowest recorded level since 2018. Ostry's research suggests that as shipping costs decline, their inflationary impact diminishes. The decline in maritime-transport expenses in 2022 is expected to contribute to a reversal of inflationary pressures.
Ostry emphasized the importance of recognizing shipping costs as a driver of global inflation and urged central banks to consider them in their efforts to maintain price stability. Shipping-cost shocks can serve as early indicators for central banks, helping them stay ahead of potential risks and avoid being caught off guard by inflationary pressures.