OECD Forecasts Higher Than Expected Inflation as GDP Growth Stalls

Inflation is expected to continue accelerating over the next two years by more than previously forecast, as supply disruptions, logistics bottlenecks, and higher wages drive prices upwards.

According to a quarterly report published by the Organization for Economic Co-operation and Development (OECD) on Tuesday, average inflation for G20 economies is expected to jump to 3.7% in 2021, up from a previous May projection of 3.5%. Then, come next year, price pressures across the Group of 20 bloc are expected to surge to 3.9%, up by 0.5% from previous forecasts.

The OECD projects consumers in Canada will pay 3.1% more for goods and services this year, which is up 1.1% from the organization’s forecasts made in May. In 2022, price pressures will alleviate slightly to an annualized 2.8%; however, it is still double the inflation rate expected in the prior forecast. Meanwhile, the 2021 inflation forecast for the US jumped from 2.9% to 3.6%, before moderating to 3.1% the following year.

“inflation has risen sharply in the United States, Canada, the United Kingdom, and some emerging-market economies, but remains relatively low in many other advanced economies, particularly in Europe and Asia.” the Paris-based organization wrote in its report. “Inflation is expected to settle at a level above the average rates seen prior to the pandemic.”

Indeed, it appears that the “transitory” narrative is quickly losing steam, as a more ominous sign if stagflation unfolds. The OECD points out that the pandemic economic recovery has lost momentum, as growth becomes increasingly uneven across economies. As a result, the organization downgraded its global growth forecast from 5.8% to 5.7%, with GDP growth across Canada sitting at 5.4% this year, down from a previous forecast of 6.1%. Similarly, output growth in the US is expected to fall from 6.9% to 6% in 2021.

“Supply pressures should fade gradually, wage growth remains moderate and inflation expectations are still anchored,” the OECD warned, adding that “a longer period of higher inflation from persisting supply shortages could shift expectations further.”

Information for this briefing was found via the OECD. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.