Leading world economies are working at almost full capacity and driving inflationary pressures but a general rise in interest rates could slam the brakes on, the head of the OECD warned on Tuesday.
The new secretary general of the Organisation for Economic Co-operation and Development Angel Gurria told financial journalists here apart from Japan, where inflation was low, "there is perhaps a slightly bigger problem of a fear of inflation because industry and the services sector are much closer to full capacity".
He said that any sharp change in the price of oil, followed possibly by an international crisis, would soon have an effect on price levels. He said that a "new generation" of investment was needed to create new production capacity and therefore reduce inflationary pressures.
He said that interest rates in Japan, where the key rate had been zero for a long time, should not be increased quickly because it threatened to weigh heavily on the national debt.
He also said that eurozone property markets might slow down with a so-called "soft landing", saying that prices in Spain last year had risen by only 9.8 percent, or less than 10.0 percent for the first time for several years. Prices were slowing, he said, because of "physical limits" in the market, a rise in interest rates and high prices. The slowing of the property market would explain a slowing of growth in 2007, he said, but played down any threat of recession.