OECD and IMF Actually Want to Cause Inflation

To many, the word “inflation” causes a knee-jerk reaction and a cringe. Most associate inflation with a negative trend for economies and buying power. Some inflation, however, can actually be a good thing, and that is why the Organization for Economic Cooperation and Development (OECD) is calling on world leaders to use demand-side models to actually spur on inflation.

To many, the word “inflation” causes a knee-jerk reaction and a cringe. Most associate inflation with a negative trend for economies and buying power. Some inflation, however, can actually be a good thing, and that is why the Organization for Economic Cooperation and Development (OECD) is calling on world leaders to use demand-side models to actually spur on inflation.

According to the OECD, the world has been following a supply-side measure for too long and needs to shift its focus away from this practice. Instead, it suggests that a demand-side model may better address a concern over global deflation.

“A lack of demand means you have to do something on the other side – we’ve been focusing on the supply side for many years,” Angel Gurria, Secretary General of the OECD, said in an interview with Bloomberg. “We should be worried about deflation.”

The world has narrowly avoided a global slump over the last few weeks thanks, in large part, to a series of stimulus packages granted to various nations. Unfortunately, these are just temporary measures, and have done little to create a sustainably expanding world economy.

The International Monetary Fund (IMF) has repeatedly warned that its assessment for this year will likely have to be downgraded. This has caused them to urge policy makers to do whatever is needed to create overall economic growth. Overall, the OECD currently forecasts global growth of just 3% this year.

“Investment is about half the speed it should be growing because of uncertainties and regulatory issues, and ultimately because of the financial side – credit is not flowing … We’re not forecasting a recession, we’re just saying conditions are tough.”

The shaky world economy has caused negative interest rates on bonds, once again, and delayed a number of anticipated rate increases by the US Federal Reserve. These are the natural result of bailout programs and preferential sub-zero interest rates. According to Gurria, world leaders are running out of policy options to help sustain growth without a significant structural change.

Gurria described the situation by saying: “We’ve run out of those easy fixes. Now we have to think medium and long term.” He added that world leaders needed to return to “fundamentals again” in order to foster long-term global economic growth.