Why worries about rising inflation due to Red Sea attacks may be unfounded

  • Wall Street analysts argue that concerns about Houthi attacks on ships in the Red Sea causing inflation are overblown
  • The link between rising freight costs and consumer-price index is weak for developed-market economies like the U.S.
  • Small island nations may face the biggest price shock from trade disruptions, while the U.S. could see a small increase in CPI
  • Effects of low water levels in the Panama Canal are also limiting shipping traffic, but the impact on inflation is expected to be negligible
  • Market-based gauge of inflation expectations has actually fallen since December
  • The Federal Reserve is likely to look through any supply shock and not change its monetary policy
  • So far, the impact of the attacks on shipping vessels in the Red Sea has been negligible

Wall Street analysts are dismissing concerns that Houthi attacks on ships in the Red Sea will lead to a second wave of inflation. According to these analysts, the link between rising freight costs and consumer-price index is weak, especially for developed-market economies like the U.S. While small island nations may face a significant price shock, the impact on the U.S. is expected to be minimal, with a potential increase of 0.4% to 0.7% in headline CPI and 0.2% in core CPI. Additionally, the effects of low water levels in the Panama Canal are also limiting shipping traffic, but the impact on inflation is projected to be negligible. Market-based gauges of inflation expectations have actually fallen since December, further supporting the argument against significant inflationary pressures. The Federal Reserve is likely to overlook any supply shock and maintain its current monetary policy. So far, the attacks on shipping vessels in the Red Sea have had a negligible impact on inflation rates.

Public Companies: TS Lombard (), BMO (), Arbroath Group (), Barings Bank (), Federal Reserve (), Goldman Sachs Group ()
Private Companies:
Key People: Dario Perkins (Analyst at TS Lombard), Christopher Smart (Managing Partner at Arbroath Group)

Factuality Level: 7
Justification: The article provides analysis and opinions from Wall Street analysts regarding the potential impact of Houthi attacks on inflation. It references studies and data to support the arguments made. However, it is important to note that the article does not provide a comprehensive view of the topic and may not consider all relevant factors.

Noise Level: 7
Justification: The article provides some analysis on the potential impact of Houthi attacks on inflation, but it lacks depth and relies heavily on the opinions of Wall Street analysts. There is limited evidence or data provided to support the claims made in the article. Additionally, the article diverts into unrelated topics such as El Nino and climate change, which adds to the noise level.

Financial Relevance: Yes
Financial Markets Impacted: The article discusses the potential impact of rising freight costs on inflation, which could have implications for consumer prices and the overall economy.

Presence of Extreme Event: No
Nature of Extreme Event: No
Impact Rating of the Extreme Event: No
Justification: The article primarily focuses on the potential economic impact of rising freight costs and inflation, without mentioning any extreme events or their ratings.

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