MNI: OECD Doubles CPI Forecast, Sees Growth Subdued By War

The OECD doubled inflation forecasts through next year and slashed its growth projection blaming the Ukraine invasion, and the Paris-based group's chief economist said cutting off Russian energy dollars is "essential" to ending the conflict.

Consumer prices will rise 8.5% this year and 6% next year according to the OECD Economic Outlook. This year's global growth forecast was cut to 3% from about 4.5% and next year's expansion will slow further to 2.8%. GDP climbed 5.8% last year after contracting 3.4% in 2020 amid the Covid pandemic.

"Forthcoming EU embargoes on coal and seaborne oil imports from Russia are likely to push up global energy prices further over the next year, keeping headline inflation higher for longer," the OECD said. "Core inflation, though slowing, is nonetheless projected to remain at or above medium-term objectives in many major economies at the end of 2023."

The report included an editorial by OECD chief economist Laurence Boone titled "The price of war" saying "limiting Russia’s ability to finance the war, as is intended by an embargo on Russian oil exports, is essential for speeding up an end to this devastating conflict."

YEARS OF CONSTRAINED SUPPLY

Central banks now face a difficult balance of curbing inflation without derailing the economic rebound, the OECD said. Official rates across the group are projected to average 2.5pp higher in 2023 than they were last year to tackle persistent inflation.

"Removing accommodation is therefore warranted across the globe, but with particular caution in Europe where supply-driven inflation dominates," the OECD said. "The case for a relatively quick normalization is particularly strong in the United States, Canada and many smaller European countries."

Stagflation risks are lower than the 1970s because major economies rely less on crude oil, central banks have better policy frameworks and some consumers have built up savings through the pandemic, the OECD report said. Still: "Uncertainty is deterring business investment and threatening to curb supply for years to come."

The forecast comes one day after the World Bank reduced this year's global growth estimate to 1.2pp to 2.9% and said “a protracted period of feeble growth" is possible.