The International Monetary Fund 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 stated that the global economy is currently navigating the crosscurrents of war and technological advancement.
The Washington‑based lender projected global growth 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 2024–2025.
According to the report shared via the IMF’s official X handle, this modest slowdown reflects the impact of the war in the Middle East, which is being partly offset by accelerated momentum in artificial intelligence adoption.
The Fund noted that the economic impact varies significantly depending on a country’s exposure to the conflict and its position in the technology value chain.
It stated, “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.”
The IMF added that these revised projections indicate that the global disinflation trend, which had been in place since the beginning of 2024, has now stalled.
Warning of downside risks, the report highlighted that a renewed escalation of conflict in the Middle East looms large and could prolong commodity price volatility, disrupt supply chains, and tighten financial conditions.
The report also cautioned that accelerating trade fragmentation could reduce global output and increase prices, while a possible correction in high‑tech‑driven expectations poses additional risks.
Conversely, the IMF stated that upside risks include a swifter‑than‑expected normalisation in energy markets, stronger technology investments, and structural reforms that could boost medium‑term growth.
To navigate these challenges, the lender urged central banks and governments to focus on restoring price stability through clear communication, central bank independence, and strong financial oversight.
It also recommended rebuilding fiscal buffers and using fiscal tools sparingly through temporary, targeted support to protect vulnerable populations.
The report further read, “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.”
Driven by surging energy prices, global headline inflation rose for a third consecutive month year‑on‑year in May, breaking the downward trend that began in 2024.
The IMF further explained that while sequential headline inflation jumped by almost four percentage points between February and April, core inflation has remained relatively stable in most economies.