The OECD has warned that the global recovery from the pandemic remains uneven, as it lifts its inflation forecasts following the surge in commodity prices.
In its latest economic outlook, the Paris-based group warned that a rapid increase in demand as economies reopen has pushed up the cost of key commodities such as oil and metals.
Food prices are also rising, boosting prices especially in emerging markets, with supply chain tensions pushing up cost pressures and shipping costs rising sharply, it says.
So, the OECD has lifted its forecast for inflation across the G20 group of nations this year to 3.7%, from 3.5%, and for 2022 to 3.9% from 3.4%.
The UK’s inflation rate is now seen at 2.3% this year (up from 1.3% back in May), and at 3.1% in 2022 — over the Bank of England’s 2% target.
The OECD says the outlook for inflation “varies markedly”, having risen sharply in the US and some emerging market economies but remains relatively low in many other advanced economies, particularly in Europe.
Headline consumer price inflation has also picked up around the world in recent months, pushed up by higher commodity prices, supply-side constraints, stronger consumer demand as economies reopen, and the reversal of some sectoral price declines in the early months of the pandemic.
Annual inflation has risen to over 5% in the United States but remains at relatively low rates in many other advanced economies, particularly in Europe and Asia.
Part of the current rise in inflation reflects base effects, following price declines in the early phase of the pandemic. In many emerging-market economies, high energy and food prices have pushed up inflation, reflecting both strong price increases and the relatively high share of commodities in consumers’ expenditure.
These inflationary pressures should eventually fade, it adds:
Once bottlenecks are resolved, price increases in durable goods, such as cars, are likely to ease quickly as supply from the manufacturing sector rapidly picks up.
Consumer price inflation in G20 countries is projected to peak towards the end of 2021 and slow throughout 2022. Although sizeable pay increases are happening in some sectors that are reopening such as transportation, leisure and hospitality, overall wage pressure remains moderate.
Read More: UK government ‘strikes deal to restart CO2 production’ to ease food