OECD To Developed Economies: ‘Remain Vigilant’ For Signs Of ‘Persistent Inflation’
POLAND - 2020/11/25: In this photo illustration, United States one hundred-dollar bills ($100) seen displayed.
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The Organization for Economic Cooperation and Development warned developed nations to “remain vigilant” for signs of “persistent inflation.”

In its September 2021 economic outlook, the intergovernmental organization noted that most large economies are experiencing sharp hikes in price levels. Though economists foresee a moderation in consumer price inflation among G20 economies from 4.5% at the end of 2021 to 3.5% by the end of 2022, they note that “sizeable uncertainty remains” — especially in the United States.

The OECD explains:

Annual inflation has risen to over 5% in the United States but remains at relatively low rates in many other advanced economies, particularly in Europe and Asia. Part of the current rise in inflation reflects base effects, following price declines in the early phase of the pandemic.

Near-term inflation risks are on the upside, particularly if pent-up demand by consumers is stronger than anticipated, or if supply shortages take a long time to overcome. The impact of past increases in shipping costs and commodity prices is already sizeable in the G20 economies, accounting for much of the rise in inflation over the past year, and is likely to linger through much of 2022 even if there are no further cost increases.

Indeed, central banks across the world — most notably, the Federal Reserve Bank of the United States and the Bank of England — have acknowledged the economic risk posed by high inflation. However, both groups — like the OECD — predict an eventual decrease in price levels.

In response to growing concerns about inflation, President Biden likewise argued that inflation is transient in nature: “We also know that as our economy has come roaring back, we’ve seen some price increases. Some folks have raised worries that this could be a sign of persistent inflation. But that’s not our view. Our experts believe and the data shows that most of the price increases we’ve seen are … expected to be temporary.”

In the United States, high inflation has significantly impacted the nation’s rebound from COVID-19 and the lockdown-induced recession. For Americans, inflation — which rose from 1.4% in January to 5.4% in September — has outpaced wage growth, thereby decreasing consumers’ purchasing power.

The Bureau of Labor Statistics found that “average hourly earnings” in the United States rose from $29.35 in June 2020 to $30.40 in June 2021 — a 3.6% increase. However, when factoring in an inflation rate of 5.3%, “real average hourly earnings” were declining at a 1.7% annualized rate.

For an American earning $50,000 per year, the agency’s findings reveal the equivalent of an $850 annual pay cut.

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