Global inflation rates remain stable in August as euro area plunges into deflation, OECD says

A decline in energy prices contributed to the first slide into negative inflation rates in Europe since May 2016

A waiter serves customers eating and drinking on the terrace area outside Cafe de Paris, ahead of the enforcement of new Covid-19 restrictions which will see bars and restaurants closing early, in Paris, France, on Monday, Sept. 28, 2020. President Emmanuel Macrons government is seeking to ease tension after the first significant tightening of restrictions on French daily life since the end of the lockdown in May. Photographer: Nathan Laine/Bloomberg

A waiter serves customers on the terrace of the Cafe de Paris in the French capital. Inflation in the euro area fell into negative territory in August for the first time in four years, the OECD said. Bloomberg.

Michael Fahy

Oct 05, 2020

Annual inflation across some of the world's biggest economies remained stable at about 1.2 per cent in August, according to the Organisation of Economic Cooperation and Development.

Energy prices across the 37-member bloc continued to decline – dropping 7.1 per cent in August compared with an 8.4 per cent decline in July – but food price inflation rose marginally to 3.9 per cent, from 3.8 per cent a month earlier.

There were marked differences in changes across the world, though, with the euro area nations experiencing deflation for the first time in over four years. Annual consumer price inflation dropped to -0.2 per cent, declining from 0.4 per cent in July and the first negative inflation rate since May 2016, the OECD said.

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"Excluding food and energy, annual inflation also dropped sharply to 0.4 per cent, compared with 1.2 per cent in July," the Paris-based organisation said.

Inflation dropped markedly in the UK (to 0.5 per cent from 1.1 per cent) and France (to 0.2 per cent from 0.8 per cent), but edged up to 0.0 per cent in Germany, from -0.1 per cent in July.

In Japan, inflation nudged lower to 0.2 per cent, from 0.3 per cent a month earlier, but in the US it rose to 1.3 per cent, from 1 per cent in July.

Across the G20 group of the world's biggest economies, annual inflation edged up to 2.5 per cent, from 2.4 per cent in July as non-OECD countries like Russia, Brazil and Saudi Arabia all reported higher rates.

Deflation in the euro area continued in September, with figures from the EU's statistics office on Friday indicating an annual rate of -0.3 per cent.

Excluding food and energy costs, core inflation dropped to 0.4 per cent, from 0.6 per cent in August, which is "well below" the European Central Bank's 2 per cent target, Emirates NBD's head of macro strategy Shady Elborno said in a note on Monday.

"The figures on Friday are raising pressure on the European Central Bank to add stimulus, as an ongoing recession will likely keep price growth below its target for years to come. However, markets don’t expect action soon, as ECB policymakers have long said that more data, particularly around 2021 fiscal policies, will be needed before they can take further steps," Mr Elborno said.