Grocery shopping at Sainsbury’s supermarket in London. Credit … Tolga Akmen / EPA, via Shutterstock
Russia’s invasion of Ukraine has led to persistent inflation in the world.
Prices rose last year due to supply chain congestion, Covid-19 shutdowns and rising energy costs – problems that were expected to disappear in 2022.
Six months ago, the Organization for Economic Co-operation and Development estimated that hardly any of its 38 members would see inflation above 6 per cent. The main exceptions were Turkey and Argentina, which were already struggling with irreversible inflation, mostly unrelated to the pandemic.
Since then, sanctions against Russia, one of the world’s largest producers of energy and grain, have raised food, fuel and fertilizer prices. Russian bombings, blockades and confiscations have cut off the flow of grain from Ukraine, another leading producer, raising the specter of hunger in the poorest food-importing countries.
At the same time, China’s policy of closing down areas where Covid-19 outbreaks have exacerbated the problem.
The OECD announced sobering updates this week. In seven Eastern European countries, inflation is expected to exceed double digits. The forecast rate for the Netherlands this year has almost tripled to 9.2 percent; Australia doubled to 5.3 percent. And like the United States, Britain and Germany have noted that inflation has peaked in four decades, well above previous forecasts.
This is likely to eat away at household incomes and savings, while slowing down companies’ efforts to invest and create jobs.
Central banks in the United States, Britain, Australia and India have recently taken aggressive action to curb rising prices by raising interest rates. Even the European Central Bank, which was reluctant to raise interest rates for fear of a recession, said on Thursday it would suspend asset purchases and raise its key interest rate by a quarter at its meeting next month, and possibly by even more so in September.
But there is a limit to what political and financial leaders can do about rising inflation – especially for a variety of reasons. In many regions, such as Europe, inflation is due to significant jumps in food and energy prices. Raising interest rates will not solve major supply problems, the OECD warned.
In contrast, the organization partly blames inflation in the United States for “excessive demand,” which is more responsive to tighter monetary policy. Compared to Europe, the US labor market is tighter and nominal wage growth is higher.
Although inflation is causing severe pain in some places, the long-term outlook is more positive. The World Bank expects global consumer price inflation to fall below 3 percent next year.
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