The International Monetary Fund (IMF) has stated that the world is nearing victory in the fight against inflation, which peaked at 9.4 percent during the third quarter of 2022.
“The battle against inflation is almost won; after peaking at 9.4 per cent year-on-year in the third quarter of 2022, we now project global headline inflation will fall to 3.5 per cent by the end of next year.”
These remarks were made by Pierre-Olivier Gourinchas, the IMF’s Chief Economist, who also observed that inflation rates in many countries are now aligning with central bank targets.
The IMF forecasts a 3.5% decline in inflation for 2025, which is lower compared to the 5.8% expected in 2024.
Mr. Gourinchas shared these insights during the release of the World Economic Outlook on Tuesday, October 22, at the 2024 IMF/World Bank Group Annual Meetings in Washington, D.C.
He credited the reduction in inflation without a significant recession to the resilience of the global economy, which is projected to maintain steady growth at 3.2% for both 2024 and 2025.
This achievement of curbing inflation without triggering a major recession is notable, and much of the disinflation is attributed to the easing of the unique supply and demand shocks experienced earlier.
Other contributing factors were improvements in labour supply, driven by immigration in many advanced countries, he said, adding that, “monetary policy played a decisive role in keeping inflation expectations.”
However, the IMF Chief Economist cautioned that risk remained going forward because of escalation in regional conflicts, which he said could be a serious setback to the commodity markets.
Again, undesirable trade and industrial policy shifts could also lower economic output, he said, noting that such risks could force tightening of global financial conditions, derailing the gains made.
“To mitigate these downside risks and to strengthen growth, policymakers now need to shift gears and implement a policy-triple-pivot,” Mr Gourinchas recommended.
The policy-triple-pivot included a careful easing of monetary policy rate, stabilisation of debt dynamics through fiscal policy and building buffers, and growth enhancing reforms.
He called for increased efforts in building trust between governments and citizens as well as corporate conversations, while further improving international collaborations to sustain the momentum on inflation easing and economic growth.