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Cross one global economic problem off the list, for now

The Yang Ming Marine Transport Corp. Oakland cargo ship is guided into the Port of Oakland by a pair of AmNav tugboats as an engineer tends to mooring lines in Oakland, California.
Tim Rue | Bloomberg | Getty Images
The Yang Ming Marine Transport Corp. Oakland cargo ship is guided into the Port of Oakland by a pair of AmNav tugboats as an engineer tends to mooring lines in Oakland, California.

Remember deflation? The worry that falling prices could spell big trouble for many of the world's biggest economies?

You can forget about it — for now.

Thanks to a pickup in global oil prices, the annual inflation rate in the developed world jumped to 2.3 percent in January 2017, the highest rate since April 2012, according to a Tuesday report from the Organisation for Economic Co-operation and Development, a Paris-based think tank.

Rising prices often accompany faster economic growth. But that's not happening, according to the group's latest global economic outlook.

U.S. GDP growth is expected to hit just 2.8 percent in 2018, down from a November estimate of 3 percent, according to the report.

After a long pause since the Great Recession — punctuated by worries that falling prices could spark yet another downturn — consumers around the world are paying more each month for goods and services in what seems to be a sustained pickup in rising prices.

In the U.S., the government last month reported a bigger-than-expected 0.6 percent jump in the Consumer Price Index, pushing the annual inflation rate to a five-year high of 2.5 percent.

But while inflation is picking up, the global economy will remain stuck in low gear through next year, according to the OECD's forecast.

The group estimated the U.S. economy, for example, would grow 2.4 percent this year, up from 2.3 percent in its last forecasts from November, and then hit 2.8 percent next year, down from a November estimate of 3 percent.

Rising inflation in the U.S. has helped Federal Reserve policymakers justify their recent moves to boost interest rates from historical lows. Higher inflation usually means the economy is picking up steam; by raising rates, the Fed is hoping to keep a lid on the pace of future price increases.

But central bankers in other parts of the world, including Japan and Europe, are maintaining ultra-low rates to try to spur growth. That has helped drive the dollar higher against most major currencies.

While the return of inflation to more normal levels is good news, the outlook for global economic growth is far from clear, according to OECD forecasters.

In the latest forecast, the group said the current, relatively weak global expansion is threatened by several forces that are holding back growth. Those include the rise of economic nationalism and protectionist trade policies. They also said diverging central bank policies will weigh on growth.

Overall, global economic growth is forecast at 3.3 percent this year and 3.6 percent in 2018, the same levels the group forecast in November.

"The economic nationalism is a much bigger wildcard because we don't know how the language translates into policy at this point," OECD Chief Economist Catherine Mann told Reuters.