The UK inflation rate rose to 2.2% in July as pressures on shipping continue to affect supply chains.
Lower than predicted
The Office for National Statistics (ONS) reported today (14 August) that the Consumer Prices Index (CPI) rose by 2.2% in the 12 months to July, a rise from 2% in June that marks the first increase of 2024.
As noted by the Standard, analysts had predicted a rise of 2.3%. The unexpectedly lower rate has led to predictions that any planned interest rate cuts from the Bank of England are likely to go ahead. The rate was recently cut from 5.25% to 5%.
A rise in the cost of gas and electricity was the primary driver behind price rises, the ONS notes. The main downward contribution to the number was from restaurants and hotels, as the price of a hotel stay fell this year, whereas last year it rose.
Food inflation rose for the first time this year too, with supermarket prices rising 1.8% compared with 1.6% in June.
Shipping forecasts
Disruption to shipping routes could exert continued upward pressure on prices, as the FT reports that the Panama Canal is having issues convincing some traders to return to using the route.
A major drought last year forced traders moving goods in and out of many Latin American nation to divert shipments, as outlined then by Chartered Institute of Export & International Trade customs expert Matt Vick. The canal also placed a cap on crossings.
Now, officials at the canal are bidding to convince traders in liquefied natural gas (LNG) and commodities, such as grain, to return following the end of the drought, aiming to reach full capacity again by September.
‘A less attractive option’
Yet only 13 LNG ships made use of the canal in July, less than half the number that did so in the same month of 2022. Dry bulk ship transits were also down 35% over that period. The canal’s income has remained steady, however, as container vessels continued to use the route at usual levels and there have been higher bids for limited slots to use the canal.
Shipbroker SSY’s head of research, Roar Adland, said that the canal was becoming “a less attractive option than in the past”, as the cost of transiting through the route remains higher than before the drought.
The director of the canal, Ricaurte Vásquez, said:
“Continuing to raise prices indefinitely is not the way forward, and we are very careful to keep the Panama Canal as a relevant transit route for the whole world.”
Coffee creeping up
Politico reports that one commodity that has been affected by a different region’s shipping disruption is coffee, which has risen in price as shipments of robusta coffee from Vietnam, the world’s leading producer, have been affected by the Red Sea crisis.
Drone attacks by Yemeni Houthi rebels have forced shipments to be rerouted around South Africa’s Cape of Good Hope.
Commodity analyst Oran van Dort of Dutch firm Rabobank told Politico:
“The Houthis have displayed their capabilities to be innovative by use of not just the drones they were using before, but underwater drones. They’ve shown more and more that they can do actual damage.”
He noted, however, that he expects prices to moderate as farmers elsewhere are being incentivised to increase supply to make the most of increasing prices. Global production is also expected to hit a surplus next year.