BOJ Concerned Panama Canal Shipping Delays Could Affect Inflation  

• Around 1,000 ships pass through the Panama Canal each month carrying a total of over 40Mn tons of goods—about 5% of global maritime trade volumes. However, water levels in this vital link between the Atlantic and Pacific oceans have fallen to critical lows because of the worst drought in the canal’s 143-year history.
• As a result, the Bank of Jamaica’s Monetary Policy Committee has expressed concern that worsening shipping delays in the Panama Canal may begin to affect the bank’s efforts to tame inflation.
• The issue was discussed during the September meeting of the central bank's monetary policy committee (MPC) and was itemised in the minutes as one of the developing "risks" that must be monitored as a drought, exacerbated by a severe El Nino weather system in Panama, continues to plague water levels at the Gatún Lake, which feeds the locks of the key global trade conduit.
• According to Panama Canal authorities, the drought requires them to reduce the number of daily transits from 29 to 25 ships per day starting this month, and in the proceeding weeks, they will reduce vessel transits even more until it declines to 18 ships a day in February. That represents between 40% to 50% of full capacity. Before the restrictions, up to 38 vessels traversed the canal daily.
• Therefore, economies like the Jamaica, which relies on the canal for trade, should prepare for more disruption and delay.
• Though the inflation outturn has fallen within the BOJ’s target range for the past two months, 5.9% and 5.1% for September and October, respectively, the delays could spark another round of inflationary shocks as the costs of moving goods increase.

(Source: IMF)