Fri. Jan 21st, 2022

Inflation in the world’s rich economies has peaked at 25 years, raising concerns about rising cost of living for households and adding pressure on central banks to raise interest rates.

The annual rate of consumer price growth in the OECD group of developed countries reached 5.8 percent in November, according to data released on Tuesday, from just 1.2 percent in the same month last year and the highest rate since May 1996.

The rise was driven by energy prices, which rose by 28 percent, more than three percentage points from the previous month to the highest rate since June 1980. Food price inflation also rose sharply to 5.5 percent, from 4.6 percent in the previous month .

The data came when the incoming governor of Germany’s central bank warned that inflation could remain high for longer than economists expect.

Joachim Nagel, what succeedsed Jens Weidmann as Bundesbank president and a member of the European Central Bank’s governing body this week, said: “Citizens have significantly less money left in their wallets. . . Many people are worried about this loss of purchasing power. “

He said this raised several questions, including: “Is the very loose monetary policy still appropriate? If so, for how long? ”

In the US, the eurozone and the UK, inflation is running at more than double the 2 per cent target set by their central banks.

Line chart of annual% change in consumer price index, OECD average showing Inflation in rich countries reaches 25-year high

Eurozone inflation 5 percent hit in the last month of last year, flash figures released last week showed. US figures for December, which will be released on Wednesday, are expected to rise to 7 percent, according to economists polled by Reuters. In the UK, consumer prices rose by 5.1 per cent in November.

The world’s leading central banks have indicated that they are likely to start tightening monetary policy in the coming months.

The Bank of England increased its policy rate for the first time in three years in December and the US Federal Reserve warned that it may have to raise rates faster than previously planned. The European Central Bank announced in December that it would halt its bond purchases in the pandemic era in March.

Several European governments have intervened to mitigate the impact of sharply rising energy costs. France, Spain and Italy promised everyone help to dampen the hit for poorer households. Last week, Christian Lindner, the new German Minister of Finance, promised it to do the same.

He spoke on Tuesday, saying: “Many people are watching the inflationary trends with concern,” adding that the German government is “watching the debate closely”.

However, some economists expect inflation to decline later this year.

Ben May, an economist at Oxford Economics, said the pace of price growth in the US and eurozone was almost at its peak, while it would peak in Canada and the UK in April. Consumer price growth in advanced economies “will decline sharply in 2022,” he said, reflecting a combination of weaker energy costs and core inflation.

Eurozone inflation “is likely to peak by the end of 2021,” said Barclays economist Silvia Ardagna. However, she added that the record level reached by producer prices in most countries in November “indicates that inflationary pressures may continue in the coming months as companies are finally able to pass on the increase in production costs to consumers”.

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