US inflation will decline from its current 6.2% peak to approximately 3% in October 2022, according to the latest projections from the OECD. The report notes that inflationary pressures have been growing worldwide with the organization projecting stable inflation in December 2020 and adjusting projections upwards as time has gone by.
According to the report inflation has been caused largely by imbalances in the energy market with a 450% rise in natural gas prices and a 60% rise in oil prices since January 2021, as well as materials and equipment shortages. The number of respondents in the EU citing a shortage of materials and or equipment as a limit to production increased from 13% in 1Q21 to 49% in 4Q21.
“In current circumstances, the best thing central banks can do is to wait for supply tensions to diminish and signal they will act if necessary,” advised the OECD’s chief economist Laurence Boone regarding inflation. “Should supply constraints persist, while GDP and employment continue to grow briskly and fuel broader price increases, higher inflation pressure could last longer, destabilizing people’s expectations. That would call for action.”
The OECD expects strong 4.5% global growth in 2022 and 3.2% global growth in 2023.
The report notes imbalances in this recovery such as marked differences in the recovery across countries, acute labor shortages in some sectors and a persistent gulf between supply and demand for some goods.