MARITIME CHOKEPOINT DISRUPTIONS, TRADE AND U.S. INFLATION

The following information was released by the Federal Reserve Bank of Dallas:

Abstract: We study the effects of maritime chokepoint disruptions on U.S. inflation and their implications for monetary policy. Using satellite tracking of vessels passing through the world's major chokepoints, we measure disruptions as the reallocation of shipping across the global maritime network. Because chokepoint disruptions originate in geopolitical conflicts, natural disasters and accidents, they identify shipping shocks in a structural VAR. A disruption on the scale of a major chokepoint event raises U.S. consumer prices by about 0.2 percent for nearly two years, mostly through core prices, with transmission running from freight rates to import and producer prices. A quantitative multi-country general equilibrium model with nominal rigidities, in which disruptions raise the cost of trading goods across borders, reproduces these responses. We use the model to assess the 2023 Red Sea Crisis and the 2026 closure of the Strait of Hormuz, and to compare a policy rule that responds to consumer price inflation with rules that respond to producer price inflation or look through the disruption.