Fitch Ratings warns that rising shipping costs, triggered by disruptions in the Red Sea, will add to inflationary pressures, although the impact is likely to be less severe than the 2021 surge.
While freight costs haven’t reached the record highs of 2021, they have jumped by over 150% since December 2023. This translates to an estimated 0.4 percentage point increase in US core consumer price inflation (CPI) by the end of 2024, according to Fitch’s modelling.
The impact is smaller than 2021 due to several factors. Back then, booming manufacturing and surging consumer demand for durable goods caused a significant rise in container shipping. Today, supply chains are less congested, and goods consumption is growing moderately.
However, the rise in shipping costs adds further pressure to central banks already struggling to bring down inflation. While the impact is gradual, with import prices affected first and CPI inflation rising later, it nonetheless complicates the final stages of taming inflation.
Fitch emphasises the varying impact across countries, depending on import reliance and shipping costs as a proportion of import value. Germany, for example, imports 35% of its GDP compared to only 10% in the US, while shipping costs can range from 1% to 5% of import value.
Overall, while the current shipping cost shock is less severe than 2021, it still presents a challenge for central banks and adds to the ongoing battle against inflation.
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