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

Co-authored with Nektarios Michail and Lena Cleanthous. The paper has been published in International Economics journal.

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.