Red Sea crisis could jeopardize inflation fight as shipping costs spike globally

U.S. shipping costs are spiking as attacks in the Red Sea disrupt global trade, raising fears that inflation might pick up again if the disruption persists.

The diversion of container ships from the Suez Canal around the Cape of Good Hope in South Africa is having a “global contagion” effect on freight rates, according to a S&P Global report published this week.

Trade between Asia and Europe has faced the largest impact with the Suez Canal serving as a crucial gateway between the two regions. The rate for a 40-foot container from North Asia to Europe has surged more than 600% to $6,000 since the outbreak of the Israel-Hamas war in October, according to S&P Global Commodity Insights.

But the Red Sea crisis is now having a significant impact further afield with shipping costs between Asia and the U.S also spiking. Shipping rates from North Asia to the U.S. East Coast have jumped 137% to $5,100 for a 40-foot container from early October, according to S&P Global. Rates from North Asia to the U.S. West Coast have jumped 131% to $3,700 during the same period.

JPMorgan told clients on Tuesday that the fight against inflation could stall in the coming months if shipping costs push the price of goods higher.

“Renewed increases in global shipping costs may actually add to consumer price inflation over the next several months, should these increases ultimately pass through into higher final goods prices,” the investment bank’s economic analysts told clients in a research note. 

“Such an outcome would reinforce our expectation for progress on reducing global core CPI inflation to stall this year,” the analysts said. 

This could dash market expectations that the Federal Reserve will start slashing interest rates in March. JPMorgan believes the central bank won’t start cutting until the middle of the year as core CPI inflation will remain stable in the first half…