Inflation to remain higher for two years, warns OECD

Prices in the G20 group of major economies will grow faster than pre-pandemic for at least two years, a leading global agency has forecast, BBC reported.

Higher commodity prices and shipping costs are pushing up inflation, Paris-based policy forum the OECD said.

The UK is expected to have inflation running at about 3 per cent at the end of 2022, the highest rate of the advanced economies, the OECD said.

By contrast, inflation is expected to fall in the US, France, and Germany.

Inflation has picked up around the world due to higher costs of raw materials, constraints on the supply of goods, stronger consumer demand as economies reopen, and prices bouncing back from drops during the pandemic in some sectors, it said.

A sharp rebound in consumer demand coupled with supply disruptions and depleted stores of goods have pushed up prices and shipping costs around the world.

Persistent supply shortages could lead to a longer period of higher inflation, the OECD said.

The OECD expects the rate of inflation in the G20 to moderate from 4.5 per cent at the end of 2021 to 3.5 per cent by the end of 2022.

However, the OECD said that “sizeable uncertainty remains” about this forecast.

“Faster progress in vaccine deployment, or a sharper rundown of household savings would enhance demand and lower unemployment but also potentially push up near-term inflationary pressures,” it said in a report.

“Slow progress in vaccine rollout and the continued spread of new virus mutations would result in a weaker recovery and larger job losses.”

Some economists have said the UK inflation rate will drop as inflationary pressures ease, but others have said massive amounts of government borrowing and spending could lead to high levels in inflation.

But the OECD has forecast that UK inflation will rise, in part because of a high number of job vacancies putting upward pressure on wages.

“Shortages and labour market mismatch are at least to an extent compounded by Brexit,” an OECD spokesperson said.