2026: Global headline inflation to increase from 4.1% to 4.7% — IMF report

The International Monetary Fund (IMF) has projected that global headline inflation will increase from 4.1 per cent in 2025 to 4.7 per cent in 2026.

In its July 2026 World Economic Outlook Update, the IMF said the global economy is navigating the crosscurrents of war and technological advancement.

“Global growth is projected at 3.0 per cent in 2026 and 3.4 per cent in 2027, down from the average of 3.5 per cent recorded in 2024–25 and broadly unchanged on a cumulative basis compared with the forecasts in the April 2026 World Economic Outlook (WEO).

“The modest slowdown reflects the effects of the war in the Middle East being partly offset by accelerated demand-driven momentum in the global technology cycle, driven by advances in artificial intelligence (AI) and its adoption.”

According to the report, which was posted on the IMF’s X handle, the impact varies significantly depending on countries’ exposure to the war and their position in the technology value chain.

“Energy exporters outside the conflict zone benefit from favourable terms of trade, whereas economies benefiting from the technology-led upturn experience stronger activity even if they are energy importers.

“In contrast, activity weakens for energy importers with limited participation in the technology value chain, a group that includes many low-income countries. Slightly revised upwards from April, these projections indicate that the disinflation trend in place since the beginning of 2024 has stalled.

“Risks to the outlook are more balanced than in April but remain tilted to the downside. The possibility of renewed conflict in the Middle East looms large and could prolong commodity price volatility, further disrupt supply chains, raise prices and tighten financial conditions.

“Trade fragmentation could accelerate, potentially reducing output and increasing prices. A possible correction in technology-driven expectations also adds to the downside risks, while weakened policy buffers could amplify those risks.

“Upside risks stem from a swifter-than-expected normalisation in energy markets, stronger-than-expected technology investment, a revival of durable international cooperation that lowers trade barriers, and structural reforms that boost medium-term growth.”

The report explained that policy priorities should focus on restoring price stability through clear communication, central bank independence and strong financial oversight, while rebuilding fiscal buffers and using fiscal tools sparingly through temporary and targeted support that preserves price signals.

“Structural reforms are needed to promote energy security, AI readiness and domestic rebalancing, while international cooperation should be strengthened to ease the strain caused by ongoing tensions.

“Uneven momentum continues amid opposing shocks. Global economic activity and the outlook are being shaped by two major forces pushing in opposite directions, with asymmetric effects across countries.

“The first is the negative supply shock induced by the war in the Middle East. The second is the ongoing positive technology shock reflected in the accelerating global technology cycle, driven in large part by advances in and deployment of artificial intelligence (AI) tools.

“The global economy has, so far, weathered the shock from the war better than feared. Movements in, and the repercussions of, the main channels of transmission—commodity prices, inflation expectations and financial conditions—have remained relatively limited.

“However, transmission is still in its early stages. Commercial and strategic destocking have provided temporary relief from reduced energy flows, while forward-looking indicators such as supply chain pressures and manufacturing purchasing managers’ indices point to weaker momentum ahead,” the report noted.

The IMF further explained that inflation and inflation expectations have risen, but there is little evidence so far that expectations have become de-anchored.

“Driven by surging energy prices, global headline inflation rose for a third consecutive month year-on-year in May, breaking the downward trend that had been in place since the beginning of 2024.

“Sequential headline inflation jumped by almost four percentage points between February and April (at a seasonally adjusted annualised rate), even as core inflation has remained relatively stable in most countries.

“The gap between headline and core inflation has been wider in countries with greater economic slack and narrower in countries that introduced measures to cap fuel prices.

“Elevated energy prices and higher headline inflation readings have pushed up inflation expectations for 2026 across countries, while expectations for 2027 have changed much less (Figure 2),” the report stated.