Global shipping costs and higher commodity prices are driving consumer price inflation, which is expected to reach 3.1% in the UK by the end of next year, according to a report.
The OECD said although the global economy was growing more strongly than anticipated a year ago, the recovery was uneven. There was a marked variation in levels of inflation, which had risen sharply in the UK, US and Canada, and some emerging-market economies, but remained relatively low in many other advanced economies, particularly Europe and Asia.
It calculated higher commodity prices and global shipping costs were adding around 1.5 percentage points to annual G20 consumer price inflation, accounting for most of the inflation upturn over the past year.
According to the OECD’s Interim Economic Outlook, G20 consumer price inflation is projected to move from 4.5% at the end of 2021 to around 3.5% by the end of 2022, remaining at levels higher than before the pandemic.
A rapid rise in demand as economies reopen has pushed up prices in key commodities such as oil, metals and food. The disruption to supply chains caused by the pandemic has added to cost pressures, while shipping costs have risen sharply at the same time, the OECD said.
The report highlighted efforts by governments and central banks to mitigate the impact of the pandemic. The continued vaccine rollout and ongoing re-opening of economies meant the OECD projected global GDP growth of 5.7% this year and 4.5% in 2022.
GDP growth in the UK is predicted to be 6.7% this year and 5.2% next year, slightly down from previous forecasts in May. Forecast inflation of 3.1% in 2022 is higher than France, Italy, Germany and Spain.
However, the OECD warned there was still significant uncertainty in global economies.
It added there were signs the momentum of recovery was slowing, noting weakening retail sales, a drop in global car sales and moderate industrial production, with supply shortages for semiconductors and shipping and rising supplier delivery times holding back output in some industries.
A growing divide between new order levels and inventory holdings meant there was reduced capacity to meet new orders immediately, which was likely to push up prices.
The risk of persisting shutdowns due to outbreaks of the Delta variant in Asian countries could have adverse consequences for supply downstream and impact the pace of the global recovery, the OECD said.
It added many Asian economies were already increasing export prices due to rising input costs from higher global commodity prices, as well as capacity constraints and supply disruptions.
The OECD called for international efforts to support the vaccine rollout in low-income countries and flexible fiscal policies to keep recovery on track.
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