In its recent World Economic Outlook update, the International Monetary Fund said “the momentum on global disinflation is slowing, signaling bumps along the path.” The IMF drew attention to the Fed’s imminent interest cuts in September and November of 2024, signaling persistent inflation in the US. Pierre Olivier Gourinchas, IMF chief economist, compared the similar states of sticky inflation between the US and the UK. In light of elections across the globe, the IMF warns against increased “uncertainty” in economic growth.
In the UK, inflation has sharply descended to 2% since 2023, aligning with the Bank of England’s official target. The Bank of England’s persistent interest rate hikes, which currently stand at a 16-year high of 5.25%, indicate its tireless deployment of contractionary monetary tools to quell its concerning rate of inflation. The update elaborates on how “the risk of elevated inflation has raised the prospects of higher-for-even-longer interest rates, which in turn increases external, fiscal, and financial risks.”
Gourinchas suggested that “persistent service price pressures on either side of the Atlantic” are likely to amplify “bumps in the road” to calm inflation. Despite successful efforts to lower overall inflation, central banks worldwide are struggling to maintain the 2% inflation target while controlling growing unemployment.
With election seasons reaching their apex, parties are lobbying for protectionist policies. Republican presidential nominee Donald Trump is stern about imposing a 10% tax on all imports. Ohio senator and Trump’s running mate, JD Vance, also endorses tighter protectionism to revive domestic supply chains. Gourinchas reiterated the implications of levying tariffs on imports on host countries, known to “hurt the domestic economy and inflict spillovers to other countries as well.”
At present, the IMF forecast offers a slim probability for global inflation to reach 2% until the end of 2025.
