Shipping Costs and Inflation

49 Pages Posted: 7 Apr 2022

See all articles by Yan Carriere-Swallow

Yan Carriere-Swallow

International Monetary Fund (IMF)

Pragyan Deb

International Monetary Fund (IMF); London School of Economics & Political Science (LSE) - Financial Markets Group

Davide Furceri

International Monetary Fund (IMF)

Daniel Jiménez

International Monetary Fund (IMF); Universidad EAFIT, Students

Jonathan D. Ostry

Georgetown University; International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: March 1, 2022

Abstract

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.

Keywords: Price shocks, shipping cost, inflation pass-through, monetary policy.

JEL Classification: E31, E37, Q43

Suggested Citation

Carriere-Swallow, Yan and Deb, Pragyan and Furceri, Davide and Jiménez, Daniel and Ostry, Jonathan D., Shipping Costs and Inflation (March 1, 2022). IMF Working Paper No. 2022/061, Available at SSRN: https://ssrn.com/abstract=4076357

Yan Carriere-Swallow (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Pragyan Deb

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

London School of Economics & Political Science (LSE) - Financial Markets Group ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Davide Furceri

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Daniel Jiménez

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Universidad EAFIT, Students ( email )

Carrera 49 N° 7 sur – 50
Medellin
Colombia

Jonathan D. Ostry

Georgetown University ( email )

Washington, DC 20057
United States

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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