A 10% increase in the cost of import freight raises the annual CPI by 0.21 percentage points: RBI Article

Mumbai, Jun 16 (PT) A 10% increase in the price of import freight will lead to a 0.21 percentage point increase in annual consumer price inflation, according to an article published in the monthly bulletin of RBI for June.

The article analyzed the impact of freight price shocks, such as container shortages and pandemic-related market frictions, on retail prices through quantum import channels and prices of big.

It is written by Ripankar Biswas, Savita Pareek and Seema Saggar of the Balance of Payments Statistics Division, Department of Statistics and Information Management, RBI.

RBI said the opinions expressed in the article are those of the authors and not of the institution.

“Based on the impulse response function, the study estimates that a 10% increase in the cost of import freight is expected to raise year-on-year CPI inflation by 0.89 percentage points in over the next six quarters before dying out.

“In particular, a 10% increase in the price of import freight causes annual consumer price inflation to rise by 0.21 percentage points,” the authors said.

They said, however, that this study predates the recent Russian-Ukrainian war and therefore does not quantify the impact on freight costs of further disruptions to supply chains.

The easing observed since September 2021, in transport costs with the commissioning of new capacities and the normalization of economies, has already started to be limited by the renewed pressure of the effects of the war.

“Stretched shipping costs could therefore be a new normal for a longer period, largely dependent on geopolitical pressures easing and no further pandemic waves emerging,” the article said.

Supply disruptions induced by the COVID-19 pandemic have increased transaction costs in many sectors, especially contact-intensive ones, he said. The associated disruptions have negatively impacted many businesses, exposing weak links.

Global freight transport was one such segment that was slow to respond as trade began to rebound from the first wave of the pandemic, he said.

In line with a sharper recovery in global trade in 2021-22, particularly imports which have recovered and exceeded pre-COVID-19 levels faster than exports, freight costs have surged and remained high since the third quarter from 2020-21, the authors said.

This reflects growing imbalances between supply and demand, market frictions and limited transmission capacities. These developments have impacted logistics costs worldwide, including in India, the article adds.

(This story has not been edited by the Devdiscourse team and is auto-generated from a syndicated feed.)

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