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The relationship between shipping freight rates and inflation in the Euro Area

Nektarios Michail, Konstantinos Melas () and Lena Cleanthous ()
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Konstantinos Melas: Metropolitan College, Greece and University of Western Macedonia, Kastoria, Greece

No 2022-2, Working Papers from Central Bank of Cyprus

Abstract: Consumer inflation across the globe has rebounded during 2021, also as a result of 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 $1,300-$1,500 per day, the sensitivity of inflation to freight changes increases.

Keywords: inflation; shipping; freight rates; supply shock (search for similar items in EconPapers)
JEL-codes: E31 R4 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2022-07
New Economics Papers: this item is included in nep-eec and nep-mon
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