The annual rate of inflation across the world's developed
economies more than halved in January, reaching its lowest level
since the recession that followed the global financial crisis.
While consumer prices rose at a faster pace in a small number of
developing economies, inflation rates also eased in China,
Indonesia and South Africa.
That widespread disinflation is likely to prompt further cuts in
benchmark interest rates or other easing measures by central banks
around the world, adding to a flurry of such moves in the first
months of 2015.
The Organization for Economic Cooperation and Development on
Tuesday said the annual rate of inflation in its 34 members fell to
0.5% in January from 1.1% in December, the lowest level since
October 2009.
Slowing inflation rates largely reflect the sharp decline in
energy prices over the second half of 2014, but also the
disappointingly weak performance of the global economy. The OECD
said that among its members, energy prices were down 12% in the 12
months to the end of January, having fallen 6.3% in the 12 months
to December.
Across the Group of 20 largest economies, which account for 90%
of world economic output, the annual rate of inflation fell to 2.5%
from 2.8% in December. Inflation rates picked up in Russia, Brazil
and India.
The worry for policy makers is that low inflation will itself
hinder a long-awaited economic recovery.
When inflation is low, companies, households and even
governments have a harder time cutting their debt loads, a
particular problem for a number of highly-indebted nations in the
eurozone. And while very low inflation or falling prices can help
boost real incomes, it can also make households and businesses
postpone spending and investment.
Some economists say it is the biggest problem facing the global
economy as it enters 2015, and will likely lead to further stimulus
efforts by a number of central banks, while others will wait longer
to raise their benchmark interest rates from unusually low
levels.
Indeed, 2015 has begun with a series of moves by central banks
to boost growth and inflation rates. The People's Bank of China on
Saturday cut its benchmark lending and deposit rates less than four
months after the previous reduction.
That followed the announcement of a new program of quantitative
easing by the European Central Bank in late January, a surprise
rate cut by the Reserve Bank of India in the same month, and a
series of easing moves by smaller central banks around the
world.
By contrast, the U.S. Federal Reserve has signaled its desire to
raise its benchmark interest rate late this year, anticipating a
pickup in inflation after energy prices stabilize. The Bank of
England has also said its next move will most likely be a rate
increase, probably in early 2016, but possibly later this year.
According to the OECD, 19 of its members experienced a decline
in prices over the 12 months to Jan, up from 13 in the 12 months to
Dec. Most of those were in Europe, although U.S. consumer prices
fell 0.1% on the year, the first such decline since 2009. The
largest decline was recorded in Greece, a 2.8% drop.
A preliminary estimate for February indicates consumer prices in
the eurozone fell less sharply than in January, as energy prices
began to recover. Figures released Tuesday by the European Union's
statistics agency showed the prices of goods leaving the eurozone's
factory gates were 3.4% lower in January than a year earlier, the
largest drop since November 2009.
Write to Paul Hannon at paul.hannon@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires