The Organization for Economic Co-operation and Development (OECD) projects that global inflation will decline faster in most economies than previously expected. However, the economic think tank from Paris urges central bankers not to slacken the fight against inflation. According to the OECD, it is still too early to say whether last year’s sharp interest rate increases have sufficiently contained the upward price pressure.
The think tank points out that deflation, or negative inflation, is deepening in China and that inflation in the United States is on a downward trend. In Brazil, however, inflation is declining less rapidly than predicted at the start of the year, while wage increases in Japan continue. This could result in new price increases.
Last week it was announced that daily life in China became 0.8 percent cheaper in January than a year ago. Consumer prices therefore showed the strongest decline since 2009. The inflation rate of below 0 percent indicates that the world’s second largest economy is struggling to stimulate economic growth through domestic demand.
Due to a series of interest rate increases by the European Central Bank (ECB), inflation is now much lower than at the peak in 2022. Interest rates may fall again this year, but the central bank is cautious about indicating exactly when this can happen. Policymakers first want to see more evidence that inflation is moving towards the 2 percent target.
Fabio Panetta, member of the ECB board, indicates that interest rate reductions should start soon. “Macroeconomic conditions indicate that disinflation is well advanced. Progress towards the 2 percent target continues to be rapid,” he said at an event in Genoa, Italy. “The time for a reversal of monetary policy stance is fast approaching,” Panetta continued.
Many economists and investors think that interest rates will be reduced from April. However, this does depend on how inflation continues to develop. This has fallen sharply in recent months, but the ECB target of 2 percent is not expected to be achieved until next year.
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