Goldman: Red Sea Shipping Disruptions Imply Modest Upside To Global Inflation

Goldman Sachs write “sea freight costs have risen sharply due to Red Sea shipping disruptions, with shipping costs from Asia to Europe rising by 350% and by 100% from Asia to the US. Some commentators and investors worry that these cost increases could meaningfully raise global goods inflation, especially since inflation pressures from post-pandemic supply disruptions remain relatively fresh on their minds.”

• “We are less concerned that higher costs will significantly raise inflation for two reasons. First, the current increase in shipping costs does not coincide with the widespread factory shutdowns and transfer-driven demand surges that helped send goods inflation soaring in the aftermath of the pandemic, suggesting less scope for amplification of cost pressures today.”
• “Second, international transport costs account for a small share of the price of final consumption goods (around 1.5% on average), with sea freight accounting for an even smaller share (around 0.7%). Under reasonable pass-through assumptions, a 100% increase in the cost of sea freight therefore only raises core goods inflation by around 0.4pp and overall core inflation by around 0.1pp.”
• “Combining our estimated rules of thumb with the observed increases in sea freight rates, we estimate higher shipping costs will raise global core inflation by roughly 0.1pp in 2024, with somewhat larger effects in Europe and somewhat smaller effects in the US. We therefore see only modest upside inflation pressure from Red Sea shipping disruptions barring a more significant increase in transport costs going forward.”