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 major battle to contain rising prices.

According to the latest data from the Paris-based club of 38 industrialized economies, consumer prices rose by an average of 10.7 percent in October compared to a year earlier.

That was up from 10.5 percent in September and the highest rate since April 1988. Inflation rates range from over 80 percent in Turkey — an outlier that the president oddly believes could be curbed by rate cuts — to 3 percent in Switzerland .

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

They underline the challenge faced by central banks, determined to curb inflation, but also aware that the cost of borrowing is putting pressure on businesses and consumers.

Inflation is in double digits in 18 of the 38 countries – and over 20 percent in Estonia, Hungary, Latvia and Lithuania, as well as Turkey.

Price increases across the OECD have been driven by rising energy costs due to the war in Ukraine, although October’s 28.1 percent increase was lower than September’s 28.8 percent.

However, the rise in food prices – another major factor – accelerated from 15.3 percent to 16.1 percent.

Stripping those two measures out, the core measure of inflation of 7.6 percent remained unchanged.

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

That is why they are considering further rate hikes, even if this will put pressure on borrowers as the world heads for an economic downturn.

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

The Bank has already raised interest rates from 0.1 percent a year ago to 3 percent as it fights inflation, which is at a 41-year high of 11.1 percent.

But opinions seem divided among the officials who set the fares on where to go.

Swati Dhingra, a “pigeon” on the Bank’s Monetary Policy Committee who has voted for smaller hikes than peers, recently told a newspaper that a longer and deeper recession could come if interest rates went “much higher.”

But Dave Ramsden, a “hawk” who sometimes supported higher hikes than other MPC members, insisted that rates must continue to rise in recent times, even as the hikes add to the painful strain on millions of households and businesses.

He said the bank should “take the necessary steps” to bring inflation back to its target of 2 percent.

Next week, the Office for National Statistics (ONS) will publish inflation figures for November, in the hope that price pressures on the economy will begin to ease somewhat.

In the eurozone, inflation has fallen slightly, but still in the double digits, at 10 percent – ​​and the European Central Bank will be under pressure to take further interest rate action next Thursday.

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

Markets have been buoyed lately by hopes that the Fed is ready to begin its so-called “pivot” away from its aggressive series of rate hikes.

Fed Chairman Jerome Powell recently applauded investors when he said the time to “moderate the pace of increases” could come as early as this month.