Article

I saw three ships: peak inflation in the UK?

14 December 2021
Neville Pike
Neville Pike
UK Equities Product Director
I saw three ships: peak inflation in the UK?
Geneva, Switzerland

‘I saw three ships come sailing in / On Christmas Day, on Christmas Day / I saw three ships come sailing in / On Christmas Day in the morning’

When we talk to UK companies, a consistent theme is that logistical challenges around shipping are a key driver of inflation. There simply isn’t the availability of products and materials that rely on international trade.

Fundamentally the world’s shipping fleet hasn’t suddenly gone missing. It is just tied up in the wrong places, or else is struggling to move. But it will do, eventually.

Figure 1 shows three key shipping price indices: the Baltic Dry Index, the World Container Index, and the Shanghai Containerized Freight Index. This data suggests that logistics pricing may have just peaked.

If this is the case, then there is at least cause for hope that UK inflation data will start to come down soon after the seasonal decorations.

Figure 1. Have we reached peak inflation in the UK?

Source: Bloomberg as of 23 November 2021. Shipping data (LHS) all indexed to 1 Jan 2019 =100. UK Breakeven 5 Year Index (RHS) represents inflation expectations.

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