Red Sea Attacks Drive Shipping Costs Up By 150%, Fitch Warns Of Inflation Impact

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  • Fitch Ratings warns of inflation impact as attacks in the Red Sea drive shipping costs up by over 150%.
  • The disruptions pose challenges for reducing inflation, with potential repercussions on import prices and consumer goods supply.

Fitch Ratings has highlighted the significant impact of attacks in the Red Sea on shipping costs, projecting a surge of over 150%. These disruptions, primarily instigated by Houthi rebels targeting cargo ships, have intensified since late 2023. The attacks, attributed to the rebels’ protests against Israel’s actions in Gaza, have raised concerns about inflation management.

Challenges in Reducing Inflation Amid Rising Shipping Costs

Fitch’s forecast indicates that the steep increase in shipping costs could potentially contribute an additional 0.5 percentage points to core inflation. The implications extend beyond immediate cost escalations, with longer shipping times anticipated to hamper supplies of intermediate inputs and consumer goods. This scenario complicates efforts to curb inflation, particularly considering the protracted timeframe for these effects to manifest in inflation metrics.

Economic Projections and Impact on Central Banks

Looking ahead, Fitch projects a notable increase in US import price inflation by the end of 2024, potentially reaching a 3.5 percentage point surge. Additionally, a rise of about 1.5 percentage points in US core goods inflation is anticipated. Economists warn that navigating the final stages of inflation reduction, particularly to meet central bank targets, will prove challenging amidst mounting shipping costs. The economic landscape is further complicated by the reluctance of central banks, such as the Federal Reserve, to adjust monetary policies in response to these disruptions.

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Source: Business Insider

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