OECD lifts inflation forecast, warns of risk of protracted hikes – .

OECD lifts inflation forecast, warns of risk of protracted hikes – .

Inflation will continue to rise over the next two years, according to a revised projection by the OECD, which expects price increases to be significantly higher in 2021 and 2022 than it previously had planned for most G20 countries.

Laurence Boone, OECD chief economist, said managing inflation would be “a very difficult balancing act” for policymakers.

Releasing largely optimistic growth projections for advanced economies, the Paris-based Club of Nations predicted that activity would reach levels predicted before the pandemic by the end of 2022.

“The speed of the recovery has increased inflationary pressures, rapidly pushing prices up to where we expected them to be before the pandemic,” the OECD said in its outlook. “Policymakers in advanced economies should monitor these developments without delay. “

The OECD projects the average inflation rate in the major G20 economies to reach 4.5 percent in the fourth quarter of the year, with 1.5 percentage points of that figure caused by the effects of rising costs shipping and commodity prices.

Since its last forecast in June, the OECD has revised inflation forecasts for 2021 and 2022 upwards by more than 0.3 percentage point for most countries. The US inflation forecast for 2021 fell from 2.9% in June to 3.6%. For the UK, the equivalent figures were 1.3% in June and 2.3% this month.

For 2022, inflation forecasts have also risen sharply since June. In France and Germany, the forecast fell from 0.8 and 1.6 percent, respectively, to 1.4 and 2.6 percent.

The OECD said the most urgent task was to communicate to the public that the rise in inflation had many temporary characteristics and was mainly an adjustment of prices to levels that had always been expected after temporary declines during the pandemic. .

Boone said supply bottlenecks will ease as coronavirus vaccination rates increase, especially in emerging economies. With huge government support linked to the pandemic largely in the past, demand was unlikely to run out of control.

Although the main concern before the virus was that inflation was too low, the message now was that prices would settle at higher rates than before the pandemic – “and that’s a good thing” – but they would not stay as high as they probably were. go in the coming months.

Boone said consistent communication about the temporary nature of much of inflation would help prevent businesses and households from thinking it’s right to raise prices and demand higher wages, which would prolong the duration of inflation and become more damaging.

Governments also had a role to play, she added, in ending the pandemic narrative that they could finance anything just by borrowing.

Welcoming efforts in the United States and Europe to spend more to tackle climate change and digital transformation, she said: “It is important that governments communicate how they are going to do it. Law? That it’s not free money forever.

US President Joe Biden is looking to fund infrastructure spending with higher taxes, but faces a potentially difficult time in Congress in the coming weeks.

The OECD said that, provided countries experienced higher inflation over the next few months, the good news was that the recovery had been “extraordinarily rapid” with advanced economies likely to suffer minimal damage in the long run. term.

That would be good for countries that were functioning well before the pandemic, such as the United States, she added, but not good enough for countries for which resuming on the pre-pandemic track still meant high unemployment and growth. weak.

“A lot of savings will be pretty much where they were before, but with more debt,” Boone said.

The outlook for emerging economies was significantly worse, said the OECD, as they still struggled with high rates of coronavirus infection and low levels of immunization, leaving them more vulnerable to both a weak recovery and to high inflation.

But with greater credibility in their institutions, such as their central banks, and early steps to stem inflation, the OECD believed they would emerge even better from the Covid-19 emergency than from the financial crisis of 2008-09.


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