Inflation collapses around the world amid coronavirus pandemic

Global economy heads for deepest recession since Great Depression as business comes to near standstill

Inflation in the wealthiest countries has collapsed at the fastest pace since the financial crisis, as the coronavirus outbreak sinks the world into the deepest recession for almost a century.

The Organisation for Economic Cooperation and Development (OECD) said annual growth in the price of goods and services across the group of 37 advanced countries slowed significantly in March as Covid-19 brought business and social activity to a near standstill.

In a reflection of evaporating demand from consumers and businesses as governments impose tough lockdown measures to limit the spread of the virus, inflation across the OECD area dropped to 1.7% in March from 2.3% in February, the largest deceleration since the 2008 financial crisis.

Against a backdrop of falling global oil prices amid a price war between Saudi Arabia and Russia and as the world economy heads for the deepest recession since the Great Depression, the Paris-based group said energy prices fell by 3.6% in March, in a dramatic swing from a 2.3% increase in February. Food price inflation meanwhile increased to 2.4% in March, from 2% a month earlier.

Concerns are mounting that the global recession triggered by the coronavirus pandemic could lead to a damaging deflationary spiral. Deflation is when the price of goods and services falls for a sustained period.

Consumers may put off purchases in anticipation of cheaper prices in future. However, companies may cut wages to cope with lowering their prices, fuelling a vicious cycle.

Janet Henry, the global chief economist at HSBC, said she expected inflation in the US, eurozone and most of the G10 group of wealthy countries to turn negative within the next couple of months.