Inflation at highest level for 34 years across OECD

Inflation across the OECD has hit a 34-year high in the latest sign that central banks still have a big fight on their hands to subdue soaring prices.

Consumer prices rose by an average 10.7 per cent in October compared to a year earlier, according to latest data from the Paris-based club of 38 industrialised economies.

That was up from 10.5 per cent in September and the highest rate since April 1988. Inflation rates range from more than 80 per cent in Turkey – an outlier whose president bizarrely believes it can be curbed by cutting rates – down to 3 per cent in Switzerland.

Cost of living crunch: Consumer prices a ross the OECD rose by an average 10.7% in October compared to a year earlier

The figures come a week before key interest rate decisions in the UK, Europe and the US.

They underscore the challenge facing central banks that are determined to curb inflation, but will also be mindful that borrowing costs are squeezing businesses and consumers.

Inflation is in double digits in 18 out of the 38 countries – and above 20 per cent in Estonia, Hungary, Latvia and Lithuania as well as Turkey. 

Price rises across the OECD have been driven by surging energy costs thanks to the war in Ukraine, though the increase of 28.1 per cent in October was down from 28.8 per cent in September. 

Food price rises – another big factor – accelerated, however, from 15.3 per cent to 16.1 per cent.

Stripping those two measures out, a core measure of inflation of 7.6 per cent was unchanged.

Central banks worry that even as the energy price shock recedes, inflation could become ingrained as workers demand wage increases which are then passed on in the shape of rising prices, creating a vicious spiral.

That is why they are contemplating further interest rate hikes even though it will add to the squeeze on borrowers as the world heads into an economic downturn. 

Next week, the Bank of England is widely expected to announce a further 0.5 percentage point increase.

The Bank has already lifted rates from 0.1 per cent a year ago to 3 per cent as it battles inflation, which is at a 41-year high of 11.1 per cent.

But opinion seems divided among its rate-setting officials about where to go next.

Swati Dhingra, a ‘dove’ on the Bank’s Monetary Policy Committee who has voted for smaller hikes than colleagues, told a newspaper recently there could be a longer and deeper recession if rates go ‘much higher’.

But Dave Ramsden, a ‘hawk’ who has at times backed higher increases than other MPC members, insisted recently rates must keep rising even though the hikes are adding to the painful squeeze on millions of households and businesses.

He said the Bank ‘must take the necessary steps’ to bring inflation back to its 2 per cent target.

Next week the Office for National Statistics (ONS) will publish inflation figures for November amid hopes some of the price pressures on the economy are starting to ease.

In the eurozone, inflation has edged lower but is still in double digits, at 10 per cent – and the European Central Bank will be under pressure to take further action on rates next Thursday.

But the key global development will be the US Federal Reserve’s rates announcement on Wednesday, which will follow US inflation data also due next week. 

Markets have been buoyed recently by hopes that the Fed is ready to begin its so-called ‘pivot’ away from its aggressive series of rate rises. 

Fed chairman Jerome Powell cheered investors recently when he said that the time for ‘moderating the pace’ of increases could come as soon as this month.

This post first appeared on Dailymail.co.uk