The Fed's fight against U.S. inflation faces a new challenge: A dry Panama Canal

A cargo vessel transits the Panama Canal in 2017. | REUTERS
BY LAURA CURTIS, RUTH LIAO AND MICHAEL D MCDONALD
BLOOMBERG

Jun 3, 2023

U.S. Federal Reserve Chair Jerome Powell keeps careful track of employment levels, wages, consumer prices and numerous other metrics to see where the U.S. inflation rate may be headed in the next year.

He might also want to keep an eye on water levels at Gatun Lake.

That’s the lake that feeds the locks in the Panama Canal with the fresh water needed to raise vessels as they pass from the Pacific Ocean to the Atlantic. But a severe drought has caused water levels in the lake to drop far below normal, resulting in weight limits and rising surcharges for vessels traversing the canal.

It’s also unnerving economists and supply-chain experts. Just as the world’s delivery bottlenecks are easing, Panama’s drought and worrisome weather patterns elsewhere threaten to revive some of the chaos of 2021, when a surge in shipping costs and consumer demand resulted in shortages of goods, helping to drive U.S. inflation to a four-decade high.

If Gatun Lake levels keep falling as forecast, the market reaction will be higher shipping rates and a scramble to find alternative routes from Asia to the U.S., logistics experts said.

More:
https://www.japantimes.co.jp/news/2023/06/03/business/panama-canal-dry-economic-impact/