Global economy

Inflation projections edge higher

08/12/2021 PNG

Q1 2022 inflation is now projected to hit 5.6% in the US, revised up from 4.6% in September and 3.0% in May. The corresponding projection for the euro area is now 3.2%, up from 2.1% and 1.2%, respectively. Disruptions in energy, food and commodity markets and supply bottlenecks have been a feature of the recovery since economies reopened in 2021.

While economic output in most OECD countries has now surpassed where it was in late 2019, supply and inflationary pressures – along with renewed fears over new COVID variants and associated constraints on healthcare capacity – risk stifling the global economic recovery. The well-publicised spike in waiting times for semiconductor chips that has hit the auto sector especially hard is resulting shortages and greater demand for used cars, an indication of some of the capacity constraints in the economy.

Enhanced global co-ordination on vaccines is key: better vaccination efforts, especially in lower-income countries, should mean a lower risk of mobility restrictions and therefore of their consequent effects on economic activity. This would remove one major source of current supply chain pressures. More broadly, rethinking the allocation of public resources to bolster healthcare systems, invest in infrastructure, and improving education and training opportunities will boost the long-term resilience of the world economy.

See also: OECD Economic Outlook, Volume 2021 Issue 2