The battle against inflation is being won in most countries around the world, mainly because of interest rate increases that have slowed economic growth. Inflation could, however, make a sudden return through unforeseen channels. Those of Suez and Panama.
The attacks by Houthi rebels in the Red Sea in support of the Palestinian people, which were supposed to be a temporary setback, have lasted for two months and are paralyzing world trade.
The United Nations sounded the alarm last week. The volume of goods transiting through the Suez Canal has fallen by 42% since the start of hostilities, noted the United Nations Conference on Trade and Development (UNCTAD).
Shipping giants Maersk and Hapag-Lloyd avoid the area and have preferred to route part of their fleet through Africa and the Cape of Good Hope. The oil company BP has also temporarily suspended its shipments using this sea route.
The Suez Canal is a highway through which approximately 15% of world trade passes. It is the main maritime link between Europe and Asia. The detour via the Cape of Good Hope adds three weeks and several million dollars to a cargo ship’s journey.
The blockage of the Suez Canal comes as the other main route of international trade, the Panama Canal, is slowing down due to drought. From 38 per day, the number of ships passing through the Panama Canal had to be reduced to 30 and could decrease further if the water level does not rise.
These disruptions have caused the cost of transporting goods to skyrocket. Since the beginning of December, container shipping rates between Europe and Asia have increased by 256%. The impact is widespread: even if ships traveling between Asia and the United States do not pass through the Suez Canal, transport costs are up 162% on this route.
A domino effect
The cost of container shipping is not at the stratospheric levels it was during the pandemic, but the entire global supply chain will feel the effects of rising shipping costs in all its forms. Insurance, additional fuel and delivery delays will add to the bill.
As 80% of the world’s goods are transported by sea, upward impacts are expected on the prices of a large number of goods, including basic food products.
In the shorter term, inflation could re-emerge with rising oil prices, which impact the cost of virtually all goods and services consumed around the world.
This is a serious threat for central banks, which are preparing to celebrate their victory over inflation and are floating the possibility of an imminent reduction in interest rates.
So far, Houthi rebel attacks on merchant ships in the Red Sea have not deviated from the downward trajectory of inflation, at least not on this side of the Atlantic, the Commission said. last week the Governor of the Bank of Canada, Tiff Macklem.
The Bank of Canada, however, put ongoing hostilities in the Red Sea and the conflict between Israel and Hamas at the top of its list of risks that could derail its plans. “If this conflict were to spread, oil prices could skyrocket and the prices of tradable goods increase significantly,” warns the central bank in its Monetary Policy Report.
If that happens, the much-hoped-for rate cuts could take longer to come.