Inflation in Developed Economies Rose in February

        After seven months of decline, the annual rate of inflation across the world's developed economies rose slightly in February, and picked up across the Group of 20 largest economies.
        The first signs that global inflation may have bottomed out will be welcome news for central bankers, many of whom worried that large parts of the global economy were sliding toward deflation. But with the global economy still undergoing a weak and fitful recovery, and further declines in oil prices still possible, policy makers are unlikely to rest easy just yet.
        A deal between Iran and six world powers led by the U.S. on halting the former's path to securing a nuclear weapon in exchange for the lifting of international sanctions could send oil prices falling again, since it would pave the way for more Iranian crude to flood an already over supplied global market.
        The Organization for Economic Cooperation and Development Thursday said the annual rate of inflation in its 34 members rose to 0.6% in February from 0.5% in February last year, having fallen since July 2014. But inflation rates remain well below the 2% level targeted by most central banks as consistent with healthy economic growth.
        Slowing inflation rates since the middle of last year largely reflected the sharp decline in energy prices, and February's small rebound was in part due to a stabilization in oil prices. But the disappointingly weak performance of the global economy has also played its part, and the core rate of inflation for the OECD area--which excludes energy and food--was unchanged at 1.7% in February.
        Across the Group of 20 largest economies, which account for 85% of world economic output, the annual rate of inflation rose to 2.7% from 2.5% in January, but remained well below the 2014 high of 3.2% reached in May. Inflation rates picked up in China, Russia and Brazil, but eased in India, Indonesia and South Africa.
        The worry for policy makers is that low inflation will itself hinder a long-awaited economic recovery.
        When inflation is low, companies, households and even governments have a harder time cutting their debt loads, a particular problem for a number of highly-indebted nations in the eurozone. And while very low inflation or falling prices can help boost real incomes, it can also make households and businesses postpone spending and investment.
        Indeed, the decline in inflation since mid-2014 prompted a strong response from policy makers, including the provision of additional stimulus by the Bank of Japan, the European Central Bank, the Reserve Bank of India and a host of other, smaller central banks. The OECD calculates that since early December, central banks in countries that account for 48% of global output have eased policy.
        By contrast, the U.S. Federal Reserve has signaled its desire to raise its benchmark interest rate later this year, anticipating a pickup in inflation after energy prices stabilize. The Bank of England has also said its next move will most likely be a rate hike, probably in early 2016.
        A sustained pickup in inflation would make further easing by other central banks less likely.
        According to the OECD, 15 of its members experienced a decline in prices over the 12 months to February, down from 19 in the 12 months to December. Most of those were in Europe, although consumer prices in the U.S. and the U.K. were unchanged on the year.
        There are some early indications that the OECD inflation rate may have continued to pick up in March. A preliminary estimate for that month indicates consumer prices in the eurozone fell less sharply than in February, as energy prices began to recover.
        Write to Paul Hannon at paul.hannon@wsj.com
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        (END) Dow Jones Newswires

        April 02, 2015 06:30 ET (10:30 GMT)

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