Inflation hits 25-year high: OECD countries face cost of living crisis

Global inflation hits a 25-year high: Rocketing energy prices, rising food costs and supply crunch leave OECD countries facing a cost of living crisis

Inflation in the developed world has hit a 25-year high in a worrying sign of the pressure on household budgets.

The cost of living across the 38 countries in the Organisation for Economic Co-Operation and Development (OECD) jumped by 5.8 per cent in the year to November – the highest rate since May 1996.

Rising energy prices were the biggest factor, says the Paris-based group.

Rising inflation: The cost of living across the 38 OECD countries jumped by 5.8 per cent in the year to November – the highest rate since May 1996

The cost of energy soared by 27.7 per cent in the OECD area in the year to November – the most since June 1980, when interruptions in the world’s oil supply due to wars in the Middle East caused energy prices to spike.

Rising living costs have caused alarm among governments and central banks around the world.

With eurozone inflation at 5 per cent, its highest since the single currency was launched more than 20 years ago, Germany’s top banker warned interest rates may rise.

Joachim Nagel, who this week succeeded Jens Weidmann as Bundesbank president and a member of the European Central Bank’s governing council, said: ‘Citizens have considerably less money left in their wallets.

‘Many people are concerned about this loss of purchasing power. Is the very loose monetary policy still appropriate? If so, for how much longer?’

Energy prices have been pushed up by a surge in demand for fuel when factories reopened following lockdowns, geopolitical tensions with Russia, which has reduced its flow of gas to Europe, and earlier expectations of a cold winter.

Inflation in the UK is now 5.1 per cent with economists warning it could hit 7 per cent this spring.

In the US, November’s 6.8 per cent figure was the highest since 1982.

The OECD data came as the global risks report from the World Economic Forum (WEF) showed business leaders and economic experts are increasingly worried about ‘livelihood crises’.

Their fears focus on unemployment, which is higher than before the pandemic, and the cost of living.

Meanwhile, the pound rose above €1.20 for the first time in almost two years as investors ramped up bets that the Bank of England may hike interest rates again on February 3.

Sterling hit €1.201 in early trading, and rose against the dollar to a high of $1.362. The Bank lifted rates from 0.1 per cent to 0.25 per cent last month, the first increase since 2018.

But with inflation hitting 5.1 per cent in December, traders are betting that it might try to tame rising prices. 

The Bank has been reluctant to bump up rates too fast, worried that it could dampen the economic recovery.