PARIS - Inflation is projected to remain high in the OECD area, at more than 9% this year, but gradually moderate to 6.6% in 2023 and 5.1% in 2024 as tighter monetary policy takes effect, demand and energy price pressures diminish, and transport costs and delivery times continue to normalise.

Although prices were already creeping up due to the rapid rebound from the pandemic and related supply-chain constraints, inflation soared and became much more pervasive around the world following Russia’s invasion, which has pushed up energy and food commodity prices.

Higher energy prices have triggered increasing prices across a broad basket of goods and services, which have in turn slashed purchasing power as real wages are falling in virtually all countries in the world. If inflation is not contained, these problems will only become worse.

While central banks around the world are increasing interest rates to curb inflation and anchor inflation expectations – a strategy that is starting to pay off in Brazil and in the United States for example – rising interest rates can also increase financial challenges for households, firms and governments. Low-income countries are particularly at risk, over half of which are already in (or at high risk of) debt distress and now face tightening financial conditions.