The Organisation for Economic Co-operation and Development (OECD) has indicated that global inflation is projected to remain higher than previously anticipated through 2027, a scenario that could compel central banks from the United States to Australia to tighten monetary policy further. In a report released on Wednesday, the Paris-based group of wealthy nations stated that it had raised its consumer price growth forecasts for all G20 economies except China and Saudi Arabia, compared with its predictions from June. The organization's officials also noted that global monetary policy may need to respond to this outlook.
The OECD stated in its report, "In the face of a fresh energy price shock and stronger-than-expected demand pressures, coupled with inflation rates already exceeding targets in many economies, central banks must ensure that underlying inflationary pressures are durably contained." This analysis underscores that the economic repercussions of the Middle East conflict initiated by U.S. President Donald Trump are now expected to extend into the latter half of his current term.
The OECD's assessment comes just as major central banks worldwide have launched a new wave of interest rate increases this month. The U.S. Federal Reserve, the European Central Bank, and the Bank of Japan have all raised rates within a span of just over a week. OECD officials project that additional similar tightening actions will follow, although the scale may not match the aggressive rate hikes seen after Russia's invasion of Ukraine in 2022.
The OECD anticipates that the Federal Reserve will implement one more rate increase this year, while the eurozone, Australia, and South Korea are expected to see "further modest" hikes, and Japan will also experience "further policy rate increases." In contrast, the OECD expects the Bank of England and the Bank of Canada to hold their current rates steady for now.
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