Despite a significant decrease in inflation from its 2022 peak, the International Monetary Fund (IMF) foresees consumer price increases in most advanced economies falling short of the desired 2 percent mark until 2025. In its latest World Economic Outlook, the IMF projects global inflation to stand at 6.9 percent in 2023, a decline from the 8.7 percent recorded in 2022. The organization expects further improvement in 2024, with inflation dropping to 5.8 percent. However, persistent elevation in core inflation poses challenges.
The IMF’s analysis highlights the impact of near-term inflation expectations and tight labor markets, which may necessitate higher policy rates than initially anticipated. Expectations play a crucial role in shaping inflation dynamics, influencing current inflation rates through their impact on price- and wage-setting processes. Despite stable long-term inflation expectations around the 2 percent goal, short-term expectations have risen significantly since 2022, contributing to more resilient core inflation.
Examining the trajectory against inflation, the IMF envisions the United States and the Euro area undergoing similar patterns in their efforts to combat inflation. While inflation is projected to remain notably high in 2023 and moderately elevated in 2024, a convergence toward the long-term target of 2 percent is anticipated post-2024.