Annual inflation in OECD countries up to 4.2% amid rising energy and food prices

Energy inflation across economic bloc accelerated 17.4% in July

Consumers shop at a Walmart store in the US. Annual inflation remained stable at 5.4% in the country following six consecutive months of increases. AP

Annual inflation across some of the world’s biggest economies increased to 4.2 per cent in July, driven by soaring energy and good prices, according to the Organisation of Economic Cooperation and Development.

The rise in prices in July, up 0.2 per cent on June, came as energy prices across the 37-member economic bloc accelerated 17.4 per cent in July, compared with 16.9 per cent in June.

Meanwhile, food price inflation also increased sharply to 3.1 per cent from 1.9 per cent in June.

“OECD annual inflation excluding food and energy was stable at 3.1 per cent in July,” the Geneva-based organisation said in a statement.

Globally, central banks and governments have pumped $25 trillion into their economies to absorb the fallout from the Covid-19 pandemic.

However, the flow of money has raised fears about rising inflation, with economists expecting further pressure on prices as more countries reopen amid easing coronavirus restrictions while staff shortages and supply chain challenges worsen the outlook.

Global shipping problems, tight supplies of semiconductors and shortages of some goods such as motor vehicles have already contributed to rising inflation in many countries.

Annual inflation increased sharply in Germany, to 3.8 per cent in July from 2.3 per cent in June, the OECD said, though this figure partly reflects the “base effect from the temporary VAT decrease” in the country in July last year.

Canada also saw inflation jump to 3.7 per cent from 3.1 per cent in June, while inflation in Italy rose to 1.9 per cent from 1.3 per cent.

In the US, however, annual inflation remained stable at 5.4 per cent following six consecutive months of increases. However, the figure is still at the highest level reached since September 1990.

Fundamentally, inflation is caused by excess money ...

John Greenwood,
Invesco chief economist

The surge in US inflation is not a transitory phenomenon associated with the reopening of economies, with rising prices set “to erode returns for at least the next two years”, Invesco chief economist John Greenwood said.

“Central bankers are following an upside-down theory of inflation when they explain the current episode of inflation as a transitory, bottom-up, accidental process delivered by temporary, idiosyncratic or segmented price increases, which will soon be reversed,” he added.

“Fundamentally, inflation is caused by excess money, a phenomenon that central banks have deliberately re-created after a decade or more of restraint.”

Inflation has not increased across all OECD countries, however, with UK inflation dropping to 2.1 per cent in July from 2.4 per cent in June.

“Despite the deceleration in the rate of price growth [in the UK] in July, price pressures are expected to pick up in the remainder of 2021, which is likely to reignite the discussion on appropriate monetary policy,” said Karl Thompson, economist at the Centre for Economics and Business Research

“Indeed, in its quarterly Monetary Policy Report released earlier this month, the Bank of England upwardly revised its forecast for 12-month inflation in Q4 2021 from 2.5 per cent to 4 per cent.”

Inflation in France dipped in July, falling to 1.2 per cent from 1.5 per cent in June, while the new Japanese 2020-base CPI showed continued overall price deflation in the country at 0.3 per cent but at a slower pace than the drop of 0.5 per cent in June.

Inflation also fell in Saudi Arabia to 0.4 per cent from 6.2 per cent, however, the OECD said this partly reflected the base effect from the VAT increase in the country in July last year.

Meanwhile, in the euro area, overall inflation rose to 2.2 per cent in July, from 1.9 per cent in June, however, the measure decreases to 0.7 per cent when food and energy is excluded.

“Eurostat’s flash estimate for the euro area in August points to a sharp increase in overall inflation as well as in inflation excluding food and energy to 3 per cent and 1.6 per cent,” the OECD said.

The August flash estimate, coupled with global supply chain bottlenecks that are raising costs for firms, presents some upside risks to the inflation outlook, according to Roy Fennessy, assistant economist at Oxford Economics.

“However, we continue to view the current inflation spike as largely transitory as price corrections from widespread lockdowns in 2020 continue to sway headline inflation. Therefore, we expect inflation to fall back below target in 2022,” he said.

Meanwhile, annual inflation in the G20 area increased to 4.6 per cent in July from 4.3 per cent in June, while prices soared in non-OECD G20 economies.

Argentina saw inflation surge to 51.8 per cent last month from 50.2 per cent in June, and in Brazil, the figure rose to 9 per cent from 8.3 per cent.

Other countries to see falls included India, South Africa and China.