Inflation across OECD drops for first time since November 2020

Inflation across the industrialised world moderated slightly in July, offering hope that the current price surge may be cooling.

The latest figures from the Organisation for Economic Co-operation and Development (OECD) suggest year-on-year inflation as measured by the consumer price index (CPI) hit 10.2 per cent in July, down from a 34-year high of 10.3 per cent in June.

The fall-off in headline price growth was the first decline in inflation since November 2020.

While year-on-year inflation fell between June and July 2022 by at least 0.5 percentage points in Canada, Greece, Luxembourg and the US, the number of countries registering double-digit price growth increased from 13 to 15.

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The latest data suggest energy price inflation in the OECD fell to 35.3 per cent in July 2022 compared with a year earlier, down from 40.7 per cent in June, with decreases in 26 of 38 OECD countries.

However, food price inflation continued to rise, reaching 14.5 per cent in July 2022, compared with 13.3 per cent in June 2022. Excluding food and energy, year-on-year inflation increased to 6.8 per cent in July 2022, compared with 6.5 per cent in June 2022.

In the euro zone, year-on-year inflation, as measured by the Harmonised Index of Consumer Prices (HICP), rose to 8.9 per cent in July 2022, compared with 8.6 per cent in June 2022, as the rise in food price inflation and in inflation excluding food and energy more than compensated the fall in energy price inflation.

Eurostat’s flash estimate for the euro zone in August 2022 points to a further increase in year-on-year inflation to 9.1 per cent.

Headline inflation in the Republic was put at 9.1 per cent in July. Figures for August will be published by the Central Statistics Office on Thursday.

The European Central Bank is expected to make a 75 basis point refinancing rate increase on Thursday, according to a slim majority of economists polled by Reuters, as it battles to contain inflation running at more than four times its target.

That is a change from a Friday poll which showed the choice between 50 and 75 basis points on a knife’s edge. But the latest consensus shows the ECB’s key rate rising to 1.25 per cent this week.

“In all honesty there is a case for an even bigger move than a 75 basis point hike if you look at where policy rates are, but I think that might be a bit much for policymakers,” said Jack Allen-Reynolds at Capital Economics.

“The talk is 50 or 75 and it wouldn’t be a big shock if it was 50, but I think given where inflation is and where we are starting off, with policy rates so low, there is a very strong case for a very big rate hike.”

Having initially said it would move very gradually, the European Central Bank only just raised rates for the first time in this cycle a few months ago by half a point. Waiting so long has made it have to consider an even bigger move just as the economy enters a downturn. — Additional reporting by Reuters