Inflation across OECD countries surges to 34-year high of 10.5%

Inflation across the OECD bloc of industrialised countries rose to 10.5 per cent in September, the highest in more than 34 years, with price pressures broadening beyond food and energy in most jurisdictions.

The headline figure, up from 10.3 per cent in August, was highest level recorded since May 1988, the Organisation for Economic Co-operation and Development (OECD) said.

The Paris-based organisation said double-digit inflation was recorded in 19 of 38 OECD countries, with the rates above 20 per cent in Estonia, Hungary, Latvia, Lithuania and Turkey.

Crucially, underlying inflation which excludes food and energy continued to rise and was recorded at 7.6 per cent. In particular, services prices accelerated in a majority of OECD countries, the agency said.

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European Central Bank policymakers closely monitor underlying inflation as it indicates whether price growth and price expectations are becoming more entrenched in the economy.

Although energy inflation fell somewhat for the third consecutive month, down to 28.8 per cent year-on-year in September with declines in 22 OECD countries, it remains high, the OECD said, noting energy inflation rose substantially in a subset of European economies.

Eurostat’s flash estimate for the euro area inflation in October points to a further increase in year-on-year inflation to 10.7 per cent, reflecting essentially an increase in energy price inflation to 41.9 per cent up from 40.7 per cent in September.

To combat inflation the ECB has lifted interest rates three times so far this year, including two 0.75 per cent rate hikes in September and October. Markets are pricing in two further rate increases between now and next March, bringing the ECB’s main refinancing rate, which affects mortgages, to 3 per cent.

The OECD noted that year-on-year inflation across G7 nations rose to 7.7 per cent in September despite energy price inflation slowing in all G7 countries except Germany.

“The contribution of inflation excluding food and energy to headline inflation increased in all the G7 countries except France from August to September, with a significant increase in Germany,” it said.

Food and energy price inflation continued to be the main contributors to headline inflation in France, Germany, Italy and Japan, it added.