Buy groceries at a Sainsbury’s supermarket in London. Credit … Tolga Akmen / EPA, via Shutterstock
Russia’s invasion of Ukraine has led to stubborn inflation in countries around the world.
Prices rose last year due to supply chain bottlenecks, Covid-19-related facings and rising energy costs, problems that are expected to fade in 2022.
Six months ago, the Organization for Economic Co-operation and Development estimated that almost none of its 38 members would see inflation rates rise above 6%. The main exceptions were Turkey and Argentina, which were already facing overwhelming inflation, mostly unrelated to the pandemic.
Since then, sanctions against Russia, one of the world’s leading energy and grain producers, have raised food, fuel and fertilizer prices. Russian bombings, blockades and confiscations have cut off the flow of grain from Ukraine, another major producer, raising the specter of hunger in the poorest food-importing nations.
At the same time, China’s policy of closing down areas where there are outbreaks of Covid-19 has exacerbated the problem.
This week, the OECD announced new developments that are being clarified. In seven Eastern European countries, the inflation rate is expected to exceed double digits. The estimated rate for the Netherlands this year nearly tripled to 9.2 percent; Australia doubled to 5.3 per cent. And as the United States, Britain and Germany have seen inflation rates hit four-decade highs, well above previous forecasts.
This is likely to consume household income and savings while slowing down companies’ efforts to invest and create jobs.
The central banks of the United States, Britain, Australia and India have recently moved aggressively to contain the rapid rise in prices by raising interest rates. Even the European Central Bank, which had been reluctant to raise rates for fear of a recession, said on Thursday it would end asset purchases and raise key interest rates by a quarter. point at their meeting next month, and possibly even more. in September.
But there is a limit to what political and financial leaders can do in the face of rising inflation, especially given the different causes. In many regions, such as Europe, inflation is driven by significant increases in food and energy prices. Rising rates will not solve the underlying supply problems, the OECD warned.
By contrast, the organization blamed inflation in part in the United States for “excessive demand,” which is more in line with tighter monetary policy. Compared to Europe, the US labor market is tighter and nominal wage growth is higher.
While inflation is causing severe pain at some points, the long-term outlook is more positive. The World Bank expects global consumer price inflation to fall below 3% next year.