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

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  • Nektarios A. Michail
  • Konstantinos D. Melas
  • Lena Cleanthous

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.

Suggested Citation

  • Nektarios A. Michail & Konstantinos D. Melas & Lena Cleanthous, 2022. "The relationship between shipping freight rates and inflation in the Euro Area," International Economics, CEPII research center, issue 172, pages 40-49.
    • Handle: RePEc:cii:cepiie:2022-q3-172-3
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    Cited by:

    1. Christina Anderl & Guglielmo Maria Caporale, 2023. "Shipping Cost Uncertainty, Endogenous Regime Switching and the Global Drivers of Inflation," CESifo Working Paper Series 10798, CESifo.
    2. Sologon, Denisa Maria & O'Donoghue, Cathal & Linden, Jules & Kyzyma, Iryna & Loughrey, Jason, 2022. "Welfare and Distributional Impact of Soaring Prices in Europe," IZA Discussion Papers 15738, Institute of Labor Economics (IZA).
    3. Nektarios A. Michail & Kyriaki G. LouKa, 2023. "The inefficiency of Quantitative Easing in the Euro Area," Working Papers 2023-3, Central Bank of Cyprus.
    4. Mrudul Y. Jani & Manish R. Betheja & Urmila Chaudhari & Biswajit Sarkar, 2023. "Effect of Future Price Increase for Products with Expiry Dates and Price-Sensitive Demand under Different Payment Policies," Mathematics, MDPI, vol. 11(2), pages 1-31, January.

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    More about this item

    Keywords

    Inflation ; Freight rates; Supply shock; Shipping ;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • R4 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics

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