The rise in inflationary pressure around the world may last longer than previously anticipated, posing a new threat to the global economic recovery from the coronavirus epidemic, the Organization for Economic Cooperation and Development said on Wednesday.
In its most recent economic outlook, the Paris-based firm forecasts that global growth will cool to 5.6% this year, 4.5% in 2022 and 3.2% in 2023. In the US, the OECD expects GDP – the broadest measure of goods and services in the country – to grow 5.6% this year, 3.7% in 2022 and 2.4% in 2023.
Where is the rising inflation hitting Americans so hard?
But the OECD warns that the global recovery has lost its momentum, as companies are struggling to keep up with the post-epidemic rise in consumer demand amid disruptions in the global supply chain. Like most economists, OECD inflation will peak in 2021 but remain high in 2022 and 2023 until supply chain disruptions decrease.
“Renewed inflationary pressures risk staying longer than expected a few months ago,” the OECD said. “Rising food and energy prices are hitting low-income families in particular.”
In the US, consumer prices rose 6.2% in October compared to the previous year, the government reported last month. The so-called core prices, excluding more volatile measurements of energy and food, increased by 4.6% over the past year. These are the largest increases since the 1990s.
Rising inflation has eaten up the strongest profits and wages and salaries American workers have seen in recent months (average hourly wages in the US when inflation was calculated were 1.2% last month compared to October 2020).
OECD expects consumer-price inflation in the US to average 4.4% by 2022, rising from 3.1% when it forecasts in September and to 2.5% in 2023. Both rates are well above the Federal Reserve’s 2% target. Still, the OECD said central banks could do little to address rising inflation pressure and instead urged governments and businesses to address the root cause of the imbalance – including making vaccines readily available to everyone.
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Fed President Jerome Powell has repeatedly defended inflation as a “transitory” and blamed supply chains, consumer demand and stimulus money for disrupting high prices. But he has backed off that assertion in recent days, saying the term “transitory” is “probably the best time for lawmakers to retire” during Capitol Hill testimony.
The word ‘transitory’ has different meanings for different people, “he said Tuesday.” We use it to mean that it will not leave a lasting mark in the form of high inflation. “