Economic Commentary

Economic Commentary

January 25, 2024

Inflation Watch: Global shipping costs jump following issues at two pinch points

Executive summary

There are two main shipping access points globally – the Suez Canal and the Panama Canal – both of which are currently experiencing delays and are diverting traffic for different reasons. Accordingly, global shipping rates have soared in the past six weeks, even for routes that don’t pass through these two pinch points.

Given that neither issue will be resolved quickly, we believe these increased shipping costs will filter into goods prices globally, pushing up inflation as a result. The biggest inflation and economic risk in our view is for Europe, which can least afford higher goods prices due to its fragile economy. One industry we’d highlight for risk is auto manufacturing, which has far-flung supply chains globally that are critically dependent on shipping. Another is food-related companies.

Ultimately, the overall economic impact should be rather limited. Indeed, the U.S. economy remains solid and can absorb this shock generally. In the near term, however, it does change the inflation dynamics and could alter the Federal Reserve (Fed) rate setting calculus. Practically speaking, we don’t anticipate that shipping costs will deter the Fed from rate cuts later this year. 

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