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Inflation in wealthier countries has collapsed at the fastest rate since the financial crisis, as the coronavirus outbreak plunges the world into the deepest recession for nearly a century.
The Organization for Economic Cooperation and Development (OECD) said that annual growth in the price of goods and services in the group of 37 advanced countries slowed significantly in March when Covid-19 almost completely stopped business and social activity. .
Reflecting the evaporation of consumer and business demand as governments impose severe blocking measures to limit the spread of the virus, inflation in the OECD area fell to 1.7% in March from 2.3% in February, the biggest slowdown since the 2008 financial crisis.
The Organization for Economic Cooperation and Development is an intergovernmental organization formed in 1961 to work in world trade and the world economy. It has 36 member countries.
Based in Paris, the OECD is best known for its regular economic reports and the data it publishes, and for its PISA rankings, which compare academic performance across nations. It also collects and publishes large amounts of international economic data.
Often referred to by the Economist magazine as “a club of rich countries”. The organization originates from the Organization for European Economic Cooperation, created to administer the post-war Marshall plan for European economic recovery.
Against a background of falling world oil prices amid a price war between Saudi Arabia and Russia and as the world economy is heading into the deepest recession since the Great Depression, the Paris-based group said prices of energy fell 3.6% in March, a dramatic range from a 2.3% increase in February. Meanwhile, food price inflation rose to 2.4% in March, from 2% the previous month.
Concerns are mounting that the global recession caused by the coronavirus pandemic could lead to a damaging deflationary spiral. Deflation is when the price of goods and services falls over a sustained period.
Consumers may postpone purchases in anticipation of cheaper prices in the future. However, companies can reduce wages to cope with lower prices, which fuels a vicious circle.
Janet Henry, global chief economist at HSBC, said she expected inflation in the US. The US, the eurozone and most of the G10 group of wealthy countries will turn negative in the coming months.
“Inflation is falling further, dragged down by the latest collapse in the price of oil.”
He warned that inflation could skyrocket if governments and central banks overestimated the damage to global supply chains caused by the pandemic, and offered too much support to businesses and households to continue spending.
However, if Covid-19 paralyzes the economy worse than expected, “additional slack in the economy due to the inability to stimulate demand enough could ultimately result in below-target inflation or even absolute deflation. “he added.
Falling demand for clothing as shoppers stayed away from the main street in March caused UK inflation to drop to 1.5% in March from 1.7% in February. Economists expect inflation in Britain to drop further as the world price of oil plummets and the cost of gasoline falls.
However, the price of some high-demand products, such as long-lasting foods, sanitary products, and pet food, has risen sharply in recent weeks as consumers rush to store them.
The Bank of England, which will set forecasts for inflation and the broader economy on Thursday, has a target set by the Treasury to drive inflation towards 2%.
According to the OECD, annual inflation also fell sharply in Canada, to 0.9% in March, from 2.2% in February, while there were also sharp falls in the United States, France, Germany and Italy.
