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BENGALURU : As India faces a sharp rise in inflation, Fitch Ratings on Wednesday cautioned that the lockdown in China will exacerbate global supply-chain pressures and inflation concerns as shortages of manufactured goods could intensify. 

It said that that restrictions imposed as part of China’s zero-Covid-19 policy have led to a plunge in Shanghai freight traffic volume in April and early May. 

"With fewer trucks operating and Shanghai’s port staff unable to load and unload ships at their usual pace, significant backlogs have built up at the Port of Shanghai," said Fitch Ratings in its latest Economics Dashboard. 

India’s retail inflation accelerated to a 17-month high of 6.95% n March led by a sharper than expected spike in prices of food and manufactured goods. As inflation remained over Reserve Bank of India’s upper tolerance band of 6%, the monetary policy committee in an out of cycle policy review last week hiked repo rate by 40 basis points for the first time since August 2018. 

It added that as much of supply-chain disruptions persist, container freight rates could remain elevated or increase.

"With Shanghai handling around a fifth of China’s port volume and China accounting for 15% of world merchandise exports, shortages of manufactured goods could intensify, adding to existing global inflationary pressures," said the global Ratings agency. This channel is likely to outweigh the effect of slower growth in China on global inflation through a weakening of commodity demand and prices, it added. 

Fitch said that much of this disruption was yet to be reflected in hard global macro data, although China’s overall exports slowed sharply in April. 

The Shanghai lockdown comes at a time when there are few signs of improvement in global goods shortages including reported rising lead times for semiconductor deliveries, it said. 

Even before the latest lockdown in China, the time taken to transport freight from Asia to the US West Coast was twice as long as it was at the start of the pandemic, while shipping rates are six times higher than they were in early 2020, it pointed out. 

 

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