The OECD said in its latest economic outlook that this could increase overall price growth by 0.4 percentage points a year from now.
Major shipping companies began diverting ships from Egypt’s Suez Canal, the fastest trade route between Europe and Asia, in late 2023 after a series of attacks by Iran-backed Houthi rebels based in Yemen. Tensions remain high, with navies from around the world involved in the conflict, including the United States.
A cargo ship sails through the Suez Canal in Ismailia Governorate, Egypt, January 13, 2024.
Ahmed Gomaa | Xinhua News Agency | Getty Images
Ships are taking longer routes around the Cape of Good Hope around Africa’s southern coast, increasing sailing times by 30% to 50% and taking capacity away from global markets.
However, the OECD also notes that there was excess capacity in the shipping industry last year as a result of new container ships being ordered, which should ease cost pressures.
Claire Lombardelli, the OECD’s chief economist, told CNBC on Monday that while a sustained rise in inflation as a result of the recent crisis is a risk, it is not the OECD group’s base case.
“This is something we are monitoring closely… We are seeing an increase in shipping costs and if that continues for an extended period of time, that will have an impact on consumer price inflation. But for now, We’re not.’ We expect that to happen,” Lombardelli said.
Tiemmen Meester, chief operating officer at Dubai-based logistics company DP World, said imports from Europe have been the biggest challenge, causing significant delays for cargo already in transit. .
“Unfortunately, this will ultimately lead to higher rates as network inefficiencies lead to higher costs. But in reality, they are nowhere near the levels they were at the peak of the coronavirus pandemic… We need to see how that cost is paid for by consumers,” Meester told CNBC, describing this as a “short-term issue.”
“I think the situation we’re in right now is kind of a steady state because the network is adjusting, freight is flowing and bookings are starting to come in. It’s just going to take time,” he added. Ta.
The OECD’s Lombardelli said there had been positive data showing that overall inflation had been falling consistently across member countries in recent months. This will help real incomes recover and support consumption, he said.
The OECD’s 38 member countries include the United States, United Kingdom, Australia, Canada, Mexico, France, Germany, Israel, Turkey, Japan, and South Korea.
The latest forecast calls for 2.1% U.S. economic growth this year, an increase of 0.6 percentage points from the previous forecast in November. The outlook for the eurozone was cut by 0.3 percentage points to 0.6%, while the outlook for the UK was unchanged at 0.7%.
“We’re seeing good news in the U.S., inflation is trending down right now, but we’re not seeing any significant costs in terms of the U.S. labor market,” Lombardelli told CNBC.
“Growth is strong and inflation is coming down. So we’re going to see real income restructuring in the U.S., which should support consumption growth.”
He said Europe has been hit harder by energy price shocks, the impact of inflation on real income and consumption, and increased reliance on bank-based lending amid tight monetary policy.
In the medium term, the OECD expects an aging workforce to become an even bigger drag on growth.
Still, Lombardelli said the OECD believes the European Central Bank is in a position to cut interest rates in the second half of this year if current trends continue.