Inflation in rich countries hit 12-year high in April
Consumer prices in the rich world rose at the fastest rate in more than 12 years in April, as central bankers try to determine whether the shortages that emerged when the global economy reopened will prove to be transitory or will have lasting consequences.
The Organization for Economic Co-operation and Development said on Wednesday that consumer prices in its 36 members, which are mostly rich countries, were 3.3% higher than in April 2020. This is about the largest increase since October 2008.
In the Group of 20 major economies, which account for about four-fifths of global economic activity, the annual inflation rate rose to 3.8% from 3.1% in March, reaching its highest level in more than ‘a year.
The surge in some prices in recent months has unsettled investors accustomed to a long period of sluggish inflation. In the United States, those concerns have been compounded by the Biden administration’s fiscal stimulus package, which is unmatched in any other part of the global economy.
“Market concerns about high and accelerating inflation stem from the risk that pent-up demand, strong fiscal stimulus and the Fed’s commitment to keep key rates unchanged could cause overheating,” Moody’s Investors Service said in a note on the inflation outlook.
Much of the inflation recorded by the OECD in April came from so-called base effects. The prices of many commodities have fallen sharply as large parts of the global economy were placed on suspended animation in April 2020, and therefore prices a year later appear higher than they are compared to the average of recent years.
In April, energy prices in OECD member countries were 16.3% higher than the previous year, compared to 7.4% in March. These base effects will persist for several months as prices are now compared to very low levels a year earlier, but this effect will eventually wear off.
Producers of oil and other raw materials have responded to declining demand in the first few months of the pandemic by cutting production. In a typical economic downturn, it would have taken several months for demand to rebound. But during the pandemic, households adapted to work, educate their children and be entertained at home by purchasing a range of durable goods, including electronics and furniture.
This mismatch between surprisingly high demand and reduced supply has resulted in shortages of many of the elements that factories need to make their products. Surveys of purchasing managers from factories around the world released on Tuesday showed activity grew at the fastest rate in 11 years in May, but wait times for delivery of needed supplies were the longest of the history of the investigation. Factories reported that the prices they were paying for inputs had increased at the fastest rate in more than a decade, while the prices they were charging were increasing at the fastest rate on record.
But there are signs that raw material supplies are starting to increase. Members of the Organization of the Petroleum Exporting Countries and their allies, a group known as OPEC +, on Tuesday agreed to a previously planned production increase of around 450,000 barrels per day, from the month next.
Saudi Arabia, meanwhile, has agreed to continue to ease the separate and one-sided one-million-barrels-per-day cuts it implemented earlier this year.
In April, the group agreed to increase production by more than two million barrels per day by the end of July, bringing cumulative additions over the past year to some four million barrels per day. That’s a big chunk of the 9.7 million barrels a day the group agreed to cut in early 2020.
The role oil played in reviving inflation brought back memories of the 1970s, when disruptions in the supply of this key commodity sparked a series of other price hikes that saw inflation soar. at double-digit levels in many parts of the wealthy world. .
Most economists think the risk of repeat is very low, citing the many ways the world economy has changed over the past half century. In the 1970s, powerful unions secured wage increases to match rising inflation, and companies then raised prices to maintain profit margins, sparking a new round of wage demands.
“A lot of people compare to the 1970s, but the world is very different,” said Laurence Boone, chief economist of the OECD. “We’re more open, we don’t have the same level of unionization and indexation, and the demographics are different.”
This story was posted from an agency feed with no text editing.
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