The relationship between shipping freight rates and inflation in the Euro Area
File(s)
Journal
International Economics
Date Issued
December 2022
Abstract
Consumer inflation across the globe has rebounded during 2021 due to supply-side disruptions, one of which is the increase in freight costs. To elaborate on the relationship between inflation and shipping costs, we employ a Vector Error Correction Model (VECM) and use disaggregated monthly data from January 2009 to August 2021, using both constant tax and the standard price indices. Following a shock in freight rates, the most hard-hit sectors appear to be garments and major household appliances, items that have traditionally been manufactured outside the euro area. In addition, using a threshold regression methodology, we show that when freight rates rise more than $1300-$1500 per day, the sensitivity of inflation to freight changes increases.