Inflation collapses around the world amid coronavirus pandemic

Source: Here
The Guardian, Inflation collapses around the world amid coronavirus pandemic.
Date: 5-May-2020
 

Global economy heads for deepest recession since Great Depression as business comes to near standstill. Inflation in the wealthiest countries has collapsed at the fastest pace since the financial crisis, as the coronavirus outbreak sinks the world into the deepest recession for almost a century. The Organisation for Economic Cooperation and Development (OECD) said annual growth in the price of goods and services across the group of 37 advanced countries slowed significantly in March as Covid-19 brought business and social activity to a near standstill.
In a reflection of evaporating demand from consumers and businesses as governments impose tough lockdown measures to limit the spread of the virus, inflation across the OECD area dropped to 1.7% in March from 2.3% in February, the largest deceleration since the 2008 financial crisis.
Against a backdrop of falling global oil prices amid a price war between Saudi Arabia and Russia and as the world economy heads for the deepest recession since the Great Depression, the Paris-based group said energy prices fell by 3.6% in March, in a dramatic swing from a 2.3% increase in February. Food price inflation meanwhile increased to 2.4% in March, from 2% a month earlier.
Concerns are mounting that the global recession triggered by the coronavirus pandemic could lead to a damaging deflationary spiral. Deflation is when the price of goods and services falls for a sustained period. Consumers may put off purchases in anticipation of cheaper prices in future. However, companies may cut wages to cope with lowering their prices, fuelling a vicious cycle.
Janet Henry, the global chief economist at HSBC, said she expected inflation in the US, eurozone and most of the G10 group of wealthy countries to turn negative within the next couple of months. “Inflation is heading even lower, dragged down by the latest oil price collapse.”
She warned that inflation could soar if governments and central banks overestimated the damage to global supply chains caused by the pandemic, and offered too much support to businesses and households to keep spending. However, should Covid-19 cripple the economy worse than expected, “extra slack in the economy from a failure to stimulate demand sufficiently could ultimately result in below-target inflation or even outright deflation”, she added. Falling demand for clothes as shoppers stayed away from the high street in March prompted a drop in UK inflation to 1.5% in March from 1.7% in February. Economists expect inflation in Britain to fall further as the tumbling global oil price pushes down the cost of petrol. Research from the Office for National Statistics had shown the price of some high-demand goods, such as long-life food, sanitary products and pet food, had risen sharply in recent weeks as consumers scrambled to stockpile them.However, the government statistics body later said it had made data collection errors, and that prices had not risen as much as previously thought.
The Bank of England, which will set out forecasts for inflation and the broader economy on Thursday, has a target set by the Treasury to steer inflation towards 2%. According to the OECD, annual inflation also fell sharply in Canada, to 0.9% in March, from 2.2% in February, while there were also steep declines in the US, France, Germany and Italy.