OECD inflation slips below 4% as central banks weigh next moves on rates

Annual inflation across the world’s richest economies slipped below 4% in November for the first time in more than four years, marking a further retreat from the post‑pandemic price surge but leaving policymakers wary about declaring victory.

Consumer prices in the 38‑member Organisation for Economic Co‑operation and Development rose 3.9% in November from a year earlier, the Paris‑based group said Monday. That was down from 4.2% in September, the last month with complete data, and well below the double‑digit peaks recorded in late 2022.

The figures suggest disinflation is broadening across advanced economies, with the euro area essentially back at the European Central Bank’s 2% target. Still, the data underscore that underlying price pressures remain stronger than before the pandemic, energy costs are rising again, and overall price levels are far higher than five years ago.

“Inflation should stabilise at the 2% target in the medium term,” the ECB’s Governing Council said in a Dec. 18 policy statement, after keeping its key interest rates unchanged. The central bank reiterated that it remained “determined to ensure that inflation stabilises at its 2% target” and would make decisions “on a data‑dependent and meeting‑by‑meeting basis.”

Euro area at target, for now

According to the OECD, consumer prices in the euro area were up 2.1% in November from a year earlier. A separate flash estimate from European Union statistics agency Eurostat put euro‑area inflation at 2.0% in December, down slightly from November and precisely in line with the ECB’s goal.

The headline number, however, is being pulled down by cheaper energy. Eurostat said energy prices in the currency bloc fell 1.9% in December from a year earlier, a deeper decline than in November. By contrast, services inflation ran at 3.4%, food, alcohol and tobacco at 2.6%, and prices of non‑energy industrial goods at 0.4%.

That mix helps explain the ECB’s cautious tone. While headline inflation is near target, underlying pressures—particularly in services—remain above 2%. In its December projections, the ECB said it expects overall inflation to average 2.1% in 2025, 1.9% in 2026 and 1.8% in 2027 before returning to 2.0% in 2028. Core inflation excluding energy and food is forecast to stay higher, at 2.4% this year and 2.2% next year.

Core and food prices still elevated

Across the OECD as a whole, the latest data point to a similar pattern. Food inflation and core inflation—which strips out volatile food and energy prices—both eased to 4.0% in November. Food prices were down a full percentage point from September, while core inflation declined by 0.2 percentage point over the same period.

Even so, those measures are still running above headline inflation and well above most central banks’ 2% targets, signaling that the most persistent elements of the recent price shock have not fully faded.

At the same time, energy prices, which had been a drag on inflation in 2023 and early 2024, have turned positive again. The OECD said energy inflation in member countries climbed to 3.5% in November from 3.1% in September, reflecting higher costs for fuel and utilities in many economies.

Disinflation has nonetheless become more widespread. Between October and November, headline inflation was stable or broadly stable in 17 of the 37 OECD countries with available data, fell in 13 and rose in only seven.

The range remains wide. Türkiye’s annual inflation, while down 1.8 percentage points in November, stayed above 30%, far higher than any other OECD member. At the other end of the spectrum, Costa Rica recorded consumer prices 0.4% lower than a year earlier, continuing a spell of very low or negative inflation.

From emergency hikes to fine‑tuning

The shifting backdrop is feeding into a new phase of monetary policy.

In the euro area, the ECB has left its main policy rates unchanged since June, when it cut them by a quarter point for the first time in the current cycle. The deposit facility rate now stands at 2.00%, down from a peak of 4.00%. Officials have framed the move as consistent with inflation stabilizing near the target but have stopped short of mapping out a path for future cuts.

The U.S. Federal Reserve took a similar step in December, lowering its benchmark federal funds rate by a quarter point to a range of 3.5% to 3.75%. In minutes of that meeting, the Federal Open Market Committee said inflation had “moved up earlier in the year and remained somewhat elevated,” but noted that “downside risks to employment had increased and upside risks to inflation had diminished.”

The Fed emphasized it would “carefully assess incoming data, the evolving outlook, and the balance of risks” in considering additional adjustments. Its projections show inflation returning to the 2% goal only gradually, reaching that level around 2028.

In the United Kingdom, the Bank of England moved earlier and more narrowly. At its meeting ending Dec. 17, the bank’s Monetary Policy Committee voted 5‑4 to cut its Bank Rate to 3.75% from 4.0%. The majority pointed to a fall in annual consumer price inflation to 3.2% and signs that pay growth and services inflation were easing.

“The Committee will continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole,” the bank said, adding that further easing would be “gradual and data‑dependent.”

The Bank of Japan, which for years struggled with the opposite problem of too‑low inflation, is moving in the other direction but just as cautiously. In an October outlook report, the central bank projected that core inflation, excluding volatile fresh food, would slow to below 2% through the first half of fiscal 2026 before gradually returning to around the 2% target. Median forecasts from policymakers put core inflation at 2.7% in fiscal 2025, 1.8% in 2026 and 2.0% in 2027.

A costly shock that lingers

The latest OECD readings cap a sharp decline from the inflation peak of late 2022, when consumer prices in member economies were rising at an annual rate of more than 10% following Russia’s invasion of Ukraine, pandemic‑related supply disruptions and a rapid reopening of demand.

By December 2024 and January 2025, OECD headline inflation had slowed to 4.7%. It fell to 4.0% by May 2025, which at the time was the lowest rate since June 2021. November’s 3.9% marks the first reading below 4% since then.

For households and businesses, however, the pace of change is only part of the story. By May 2025, average consumer prices across the OECD were 33.7% higher than in December 2019. The organization has noted that it took from 2005 to 2019—roughly 14 years—to achieve a similar cumulative increase before the recent surge.

Central banks in Europe have said real wages, adjusted for inflation, have only recently recovered to pre‑pandemic levels after several years of erosion, even as nominal pay growth remains above its pre‑crisis pace.

Uneven disinflation, uncertain outlook

The OECD data also highlight how disinflation is progressing at different speeds.

In the United States, the organization said headline inflation fell by 0.3 percentage point between September and November, helped by lower core and food prices even as energy costs rose. That picture aligns with the Fed’s assessment that inflation is moderating but still above target, and that the labor market is beginning to show signs of slack.

In Britain, headline inflation has declined by 0.3 percentage point in each of the past two months for which the OECD has data, and food inflation has cooled. Those trends bolstered the Bank of England’s case for beginning a rate‑cutting cycle despite inflation remaining above 2%.

In Japan, the OECD noted that food prices are a bigger driver of overall inflation than core components, and that energy inflation has picked up again. The Bank of Japan has said it will “carefully examine” whether upward price pressures are sustained and accompanied by stronger wage growth before withdrawing support more decisively.

Looking ahead, policymakers are watching several potential spoilers: renewed spikes in energy or food prices from geopolitical tensions or extreme weather; the impact of tariffs and trade restrictions on supply chains; and the possibility that wage growth remains too strong in tight labor markets.

For now, the OECD numbers suggest that the intense phase of the inflation shock is past. But with core and food inflation still about double most central banks’ targets—and energy no longer reliably holding prices down—the final stretch back to stable 2% inflation could prove slower, and more fragile, than the drop from the peak.