Russian Invasion Expected to Keep Inflation High in Rich Countries
By Paul Hannon, June 8, 2022, WSJ
Russia’s lengthening war with Ukraine will lead to persistently higher inflation rates in rich countries this year and threaten food shortages in poorer countries, according to a new study from the OECD, which also revised down its expectations for
global growth.
In the latest of four reports on the global economic outlook published each year, the Paris-based Organization for Economic Cooperation and Development called on Western governments to avoid a repeat of the slow and patchy vaccine distribution during
the Covid-19 pandemic and act promptly to get food to those in need.
“The world is already paying the price for Russia’s aggression,” Laurence Boone, the OECD’s chief economist, said. “The choices made by policy makers and citizens will be crucial to determining how that price will be distributed across people
and countries.”
In the report released on Wednesday, the OECD said it now expects the global economy to grow by 3% in 2022 and 2.8% in 2023, having anticipated an increase in world output of 4.5% and 3.2% in those years respectively when it last released forecasts in
December. Its forecasts are gloomier than those of the International Monetary Fund, which sees an expansion of 3.6% this year and next.
The organization lowered its growth forecasts for the U.S. to 2.5% this year and 1.2% next year from 3.7% and 2.4% previously. Some Western economies could face periods of contraction this year if energy prices rise again, or interest-rate rises by
central banks that are designed to contain inflation have unintended consequences, Ms. Boone said.
But while most economies are set to see weaker growth as a consequence of the war, the OECD expects Russia to suffer a sharp fall in output, of 10% this year and 4.1% next.
Moscow’s invasion of its neighbor have pushed global energy prices higher as European countries that support Ukraine seek alternatives to the oil and natural gas they have long imported from Russia. The invasion has also disrupted exports of Ukrainian
and Russian wheat, pushing prices of foodstuffs to record highs.
That has provided a fresh impetus to inflation rates that were already high as 2022 began. The OECD now estimates that consumer prices in its 38 member countries will rise at an average rate of 9% this year, double the inflation rate it expected to see
in December.
The pickup in inflation is especially large in a number of European countries. For the Netherlands, the OECD now sees annual inflation averaging 9.2% in 2022, having expected to see prices rise by 3.1% in December. For the U.K., the OECD now sees prices
rising at an average annual rate of 8.8%, double the 4.4% increase it projected in December. By contrast, the expected pickup in U.S. inflation is much more modest. At the end of last year, the OECD expected annual average inflation to be 4.4%, and it
now sees prices rising by 5.9%.
“The peak for most countries should be in the second and third quarters,” said Ms. Boone.
The OECD said governments should provide help to poorer households that are suffering the greatest hardship as a result of higher food and energy prices. Ms. Boone said that help would also help ease demands for significantly higher pay rises that could
in turn lead to fresh price rises.
But the priority for governments should be to address the food shortages that threaten many countries in Africa and the Middle East.
“Global cooperation is needed to ensure that food reaches consumers at affordable prices, in particular in low-income and emerging market economies,” said Ms. Boone. “This may require more international aid as well as cooperation in the logistics
of shipping and distributing to countries in need.”
https://www.wsj.com/articles/russian-invasion-expected-to-double-inflation-rates-11654678800
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