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Spike In Shipping Costs Could Pose Inflation Challenge

Susan Edmunds, Money Correspondent

A sharp rise in shipping costs could pose an additional hurdle in New Zealand's battle against inflation.

Shipping costs, as measured by the global container freight index, are now more than triple what they were at the end of 2023.

It was raised as a concern at the start of the year, when shipping costs rose because of disruption in the Red Sea.

At that point, rates peaked about two-and-a-half times the rate of the end of 2023, then fell back to 1.7 times at the end of April.

But they have now returned to 3.3 times that late-2023 rate.

"Shipping rates are still a long way below the insane levels they reached during the pandemic, with the current elevated shipping rates still only 40 percent of the peak seen in September 2021," Infometrics chief executive Brad Olsen said.

"However, having returned towards normal in 2023, higher shipping rates at present still threaten to add additional cost pressures on to imported goods at a time when worries about the persistent of higher inflationary pressures is in focus.

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"Overseas-based inflationary pressures have eased quicker than domestic pricing pressures, but the strong rise in shipping rates will cost someone, and we worry that it could hit local businesses needing to import components and similar from overseas."

New Zealand was sometimes hit with a lagged effect of higher international costs, he said.

"We remain alert to higher shipping rates to hit the New Zealand economy. It also highlights the importance of global geopolitical factors and how they influence economic trends, meaning that keeping a focus on international developments is critical for Kiwi businesses."

BNZ chief economist Mike Jones said it was an unwelcome development from a cost and inflation perspective.

"However, a clear difference in the macro environment this time around is a much weaker demand backdrop. We're seeing that in firms' pricing intentions and the intense pressure on margins. That generally weak demand backdrop may well dull some of the pass-through to end prices."

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