Blogs & Comment

Inflation watch: May 25

OECD, Europe's new bank boss call for higher interest rates to fight inflation.

(Photo: Adrian Wyld/CP)

As gas and food prices continue their steady march north, shoppers aren’t the only ones sounding the alarm bells. Creeping inflation has also attracted the attention of the Organization for Economic Cooperation and Development, which is calling on many of the world’s central banks to raise interest rates. “The rise in long-term inflationary expectations . . . suggests that part of the recent rise in headline inflation may now be expected to persist longer than previously thought,” the Paris-based group observed in the Global Economic Outlook released today. 

In Canada, where the OECD predicts that efforts to cut the deficit will curb economic growth, the Paris-based organization is prodding the Bank of Canada to tackle inflation by easing off of its loose monetary policy. The OECD noted that “short-term inflation expectations appear to be inching upwards,” and said that the Bank of Canada, which has kept interest rates to promote economic growth, “should soon resume tightening at a moderate pace.” 

The recommendations were similar for central banks everywhere from the U.S. and the U.K. (which the OECD flagged as having perilously low rates) to developing economies like China, India and Brazil. 

Raising interest rates to fight inflation is also on top of mind for next leader of the European Central Bank. Speaking in Germany today, Bank of Italy governor Mario Draghi reaffirmed his position. “The solidity of global growth could be undermined by inflation,” he said. “In the face of higher inflation risks, there is a greater need now to proceed with monetary policy normalization.”