High inflation has mostly been defeated around the world, the International Monetary Fund said Tuesday, providing a surprisingly upbeat assessment on prices after warning only three months ago that progress on reducing inflation had stalled.
“It looks like the global battle against inflation has largely been won, even if price pressures persist in some countries,” the IMF said in its latest World Economic Outlook. “In most countries, inflation is now hovering close to central bank targets… The decline in inflation without a global recession is a major achievement,” the fund added, cautioning, however, that “vigilance remains key.”
“Inflation in services remains too elevated, almost double pre-pandemic levels,” it said, noting that a few developing economies have started to raise interest rates again following a resurgence of inflation.
The IMF thinks global inflation will slow to 5.8% this year — marginally below its July forecast of 5.9% — and fall to 3.5% by the end of next year, which is slightly below the average during the two decades before the pandemic.
The rosy outlook on consumer prices comes just weeks before the US election, with inflation a key issue for voters. Americans consistently cite the economy and cost of living as being top of mind, with many feeling that their incomes are not stretching as far as they used to.
According to US Consumer Price Index data, goods and services cost about 20% more in August than in February 2020, just before the global spread of Covid, even though the pace of annual price rises has cooled significantly, approaching the Federal Reserve’s 2% target.
The Fed, which cut interest rates for the first time in more than four years last month, has not yet declared victory over inflation. “We’re certainly not saying mission accomplished or anything like that,” Fed Chair Jerome Powell told reporters after delivering the jumbo cut in September.
Similarly, European Central Bank President Christine Lagarde has shied away from heralding the end of high inflation in Europe. “Inflation is on the right track,” she said Tuesday at Bloomberg’s annual Global Regulatory Forum, later adding that the central bank had not yet “broken the neck of inflation.”
While upside risks to inflation are receding around the world, threats to economic growth are multiplying, according to the IMF.
“Downside risks are increasing and now dominate the outlook,” the agency said, citing the risk of higher commodity prices due to the conflict in the Middle East and governments’ moves toward increased tariffs and protectionist industrial policies.
The IMF sees the global economy expanding 3.2% this year, as it forecast in July. But the agency upgraded its forecast for US growth to 2.8% — 0.2 percentage points higher than projected three months ago.
In bad economic news for Europe, the economy encompassing the 20 countries that use the euro is seen expanding by only 0.8%, 0.1 percentage point lower than predicted in July.
The IMF also downgraded its 2024 growth forecast for China, where the government has in recent weeks unveiled a raft of stimulus measures to support the flailing economy. The agency expects China’s economy to expand by 4.8% this year — 0.2 percentage points below its July forecast.
India is seen growing 7%, in line with the prediction three months ago.
The IMF said much more needs to be done globally “to improve growth prospects and lift productivity.” It warned against trade policy measures to protect local industries and workers, saying these often trigger retaliation by other countries and fail to improve living standards.
“Economic growth must come instead from ambitious domestic reforms that boost technology and innovation, improve competition and resource allocation, further economic integration and stimulate productive private investment,” it argued.
CNN’s Bryan Mena contributed reporting.
