Supply chain disruptions have eased, but the geopolitical conflict now boosting shipping costs adds to the challenge of curbing inflation, says Fitch Ratings.
In a new report, the rating agency said a recent jump in shipping costs, which are up by more than 150% since December 2023 amid conflict in the Red Sea region, could add half a point to core inflation.
“These increases are likely to be reflected in rising import prices in the coming months, and longer shipping times will reduce supplies of intermediate inputs and consumer goods,” it said.
Fitch estimated that higher import prices will drive core goods inflation of 1.5 percentage points, which equates to approximately 0.4 points in added core inflation.
This added source of core inflation “will intensify challenges for central bankers in completing the ‘difficult last mile’ of lowering inflation,” Fitch said.
The current outlook for shipping costs is uncertain, but it’s plausible that these costs “will remain high for several quarters,” it said.