OECD Inflation Hits Lowest in 2 Years... Growing Expectations for Interest Rate Cuts

Inflation Rate Slows in 38 Countries
September 6.2% → October 5.6%
Monetary Tightening Effects Confirmed... Pivot Expected to Accelerate

Inflation in major advanced countries has fallen to its lowest level in two years. This is analyzed to be the result of the cumulative effects of monetary tightening by central banks in each country. Expectations for interest rate cuts next year in major countries such as the United States and Europe are gradually increasing.

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According to the Organisation for Economic Co-operation and Development (OECD) on the 5th (local time), consumer prices in 38 member countries rose by 5.6% in October this year compared to the same period last year, slowing down from the previous month (6.2%). This inflation rate is the lowest in two years since October 2021. It is 5.1 percentage points lower than October last year (10.7%), when global inflation peaked due to the surge in energy and food prices caused by Russia's invasion of Ukraine.

Among the 38 OECD member countries, 28 countries saw a decrease in the rate of price increases. As a result, the overall inflation rate dropped to the 5% range. The decline in energy and food prices was notable. Energy prices fell by 4.8% compared to a year ago, continuing a negative growth rate following September. This is largely attributed to the base effect from last year's sharp rise in energy prices and the recent decline in demand due to China's economic slowdown, which led to a drop in oil prices. Food prices also rose by 7.4%, a smaller increase compared to the previous month (8.1%). Compared to November last year (16.2%), when food prices peaked, the upward trend has significantly eased.

The core consumer price inflation rate, which excludes food and energy to show the underlying trend of prices, slightly slowed from 6.6% in September to 6.5% in October.

The price stabilization trend was also clear among the Group of Seven (G7) countries. The inflation rate in the G7 in October was 3.4%, down 0.7 percentage points from the previous month (4.1%), marking the lowest level in two and a half years since April 2021. Inflation fell in six countries except Japan. Italy's inflation rate sharply dropped from 5.3% in September to 1.7% in October. Denmark's inflation was in the 0% range, and deflation occurred in the Netherlands.

As inflation begins to ease, expectations for a pivot (a change in monetary policy direction) next year have also grown. The messages that central bank officials send to the market are also shifting toward dovish (monetary easing preference) tones. Isabelle Schnabel, an ECB board member who was a hawk (monetary tightening preference) advocating further tightening until early last month, said, "The recent easing of price pressures has reduced the need for additional tightening." The market is moving the expected timing of ECB rate hikes forward from the second quarter of next year to March. Jerome Powell, Chair of the U.S. Federal Reserve (Fed), also hinted at the possibility of ending tightening on the 1st, saying, "Policy has entered a restrictive zone."

George Curtis, portfolio manager at TwentyFour Asset Management, analyzed, "In recent weeks, the rhetoric of advanced country central bank officials has changed, and the hawkish messages that dominated the past two years have finally softened. The market is now expecting the first rate cut, not the last rate hike."