Global inflation is projected to moderate to 3.5% in 2024, with a further decline to 2.8% by 2026, aligning with central bank targets. However, inflation remains elevated, especially in Emerging Market and Developing Economies (EMDEs), where it is expected to reach 4.0% in 2024 before easing to 3.5% by 2026. Persistent inflationary pressures are driven by high energy and food prices, geopolitical tensions, and supply chain disruptions. Core inflation, particularly in the services sector, remains stubborn, requiring cautious global monetary policies, with interest rates projected to stay elevated through 2026.

1. Global Inflation Trends

• Global inflation is expected to moderate gradually, with an average of 3.5% in 2024, down from the high levels seen during the COVID-19 pandemic recovery. However, this pace of disinflation is slower than previously anticipated​.
• By 2026, global inflation is projected to stabilize around 2.8%, which is broadly consistent with central bank targets​.

2. Regional Inflation Dynamics

• Advanced Economies: Inflation in advanced economies is expected to decline gradually but will remain above pre-pandemic levels for some time. Central banks are likely to continue cautious monetary policies.
  • In the United States, inflation is expected to ease but remain slightly elevated, especially in the services sector.
  • The Euro Area is experiencing a slower inflation decline due to higher energy and food prices​.
• Emerging Market and Developing Economies (EMDEs): Inflation in EMDEs is projected to slow down, but persistent price pressures, particularly in food and energy, will keep inflation higher than desired.
  • EMDEs will see inflation converge toward 4.0% in 2024 and 3.5% by 2026​.
  • In Sub-Saharan Africa, inflation is expected to remain higher due to commodity price volatility and supply constraints​.

3. Core Inflation

• Core inflation (which excludes volatile items like food and energy) remains stubbornly high in many economies, driven by strong growth in services prices. This is particularly true in the United States and other advanced economies​.
• Service sector inflation is slower to recede because of ongoing wage pressures and sticky prices in areas like housing and healthcare​.

4. Factors Contributing to Persistent Inflation

• Geopolitical tensions and supply chain disruptions continue to create price volatility, especially in commodities like oil and gas.
• High energy prices have put upward pressure on inflation, although energy prices are expected to stabilize gradually​.
• Food inflation remains a concern, especially in developing economies. Fluctuations in global grain supplies and climate-related disruptions contribute to price spikes​.

5. Commodity Prices and Inflation

• Oil prices are projected to remain slightly elevated in 2024, averaging $84 per barrel, contributing to inflationary pressures in energy-dependent regions​.
• Agricultural prices, including food commodities, are expected to stabilize, but ongoing supply chain issues and climate disruptions could trigger temporary inflationary spikes​.

6. Monetary Policy and Inflation Control

• Central banks in both advanced and developing economies are expected to remain cautious about easing monetary policies due to persistent inflationary pressures.
  • Interest rates are expected to stay elevated for an extended period. Global policy rates are forecast to average around 4% through 2026, which is double the average of the previous two decades​.
• EMDEs face the challenge of balancing inflation control with supporting economic growth. Inflation targeting and careful monetary policy management remain crucial​.

7. Risks to Inflation

• There is a risk that inflation may persist longer than expected due to several factors:
  • Geopolitical tensions could lead to further supply disruptions, especially in energy markets.
  • Trade fragmentation and rising protectionism could lead to price increases for goods.
  • Climate-related natural disasters could disrupt food production, leading to spikes in food prices​.

Key Figures:

• Global inflation: Expected at 3.5% in 2024, moderating to 2.8% by 2026​.
• Advanced economies: Expected inflation is lower but will stabilize around 2.5% by 2026​.
• EMDEs: Inflation projected at 4.0% in 2024, gradually declining to 3.5% by 2026​.
• Oil prices: Forecast to average $84 per barrel in 2024, impacting energy-dependent economies​.

Summary:

• Global inflation is moderating but remains elevated, particularly in emerging markets and developing economies.
• Inflation pressures from energy and food prices are expected to ease gradually, but geopolitical risks and supply disruptions could trigger temporary inflationary spikes.
• Core inflation, particularly in services, remains persistent, necessitating cautious monetary policies by central banks globally.

Source: The Global Economic Prospects June 2024 report