Inflation looks set to heat up again, and this time, it's being driven by the war in Iran and a chokepoint in global shipping. The Organization for Economic Cooperation and Development now expects US consumer prices to rise 4.2% on average this year, more than a full percentage point above its forecast from late last year, the New York Times reports. Across the Group of 20 major economies, inflation is projected at 4%, up 1.2 points from earlier estimates. The Paris-based body says the global economy should still expand 2.9% in 2024, helped by investment in artificial intelligence, but warns that outlook is under strain.
The pressure point is the Strait of Hormuz, the narrow waterway off Iran that handles a large share of the world's oil shipments. Attacks on vessels over the past month have sharply reduced traffic, while strikes on energy infrastructure around the Gulf have curbed supplies of fuel and related goods like fertilizer. That combination is expected to raise costs for food and a wide range of other products, the OECD's report said, adding that "resilience of the global economy is now being tested" and that prolonged export disruption from the Middle East is a "significant" risk.
"The breadth and duration of the conflict are very uncertain, but a prolonged period of higher energy prices will add markedly to business costs and raise consumer price inflation, with adverse consequences for growth," the OECD said. In the US, early-year economic strength is forecast to fade as higher energy costs hit households and offset any benefit from lower tariffs. The organization predicted that the Federal Reserve and central banks in other countries will not cut interest rates this year, Bloomberg reports. European Central Bank officials are expected to hike rates as soon as next month.
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