Research Briefing | Jan 9, 2024

Red Sea shipping attacks add to inflation risks

We assume the disruption to shipping caused by maritime attacks on commercial vessels in the Red Sea will be relatively short-lived and the recent spike in sea freight prices will reverse. While there will be near-term impacts for some firms and sectors, these won’t be enough to shift our baseline economic or inflation forecasts to any meaningful extent.

What you will learn:

  • If the Red Sea were to remain closed to shipping for several months, however, and shipping freight costs stayed around twice the level of mid-December, this could add 0.7ppts to annual CPI inflation rates by the end of 2024.
  • Still, the inflation push from this scenario wouldn’t be enough to stop world inflation from slowing over the course of this year and we doubt it would prevent the Fed and other major central banks from pivoting to rate cuts by around mid-2024. It would, however, be another reason to believe that the rate cuts priced in by markets have gone too far.
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