According to many economists, inflation is likely to ease worldwide in the coming years. However, expectations initially remain above the central banks’ inflation targets.
According to economists, inflation will gradually fall worldwide in the coming years. This year, global consumer prices are expected to rise by an average of 4.6 percent. This emerges from the quarterly survey by the Munich ifo Institute and the Institute for Swiss Economic Policy. 1,508 experts from 125 countries took part in the survey from March 12th to 26th. The inflation rate is expected to fall to 4.4 percent next year and to 4.0 percent in 2027.
The percentage determined is the median of the average expected inflation rates at country level. The median is used because the expected inflation rates vary greatly from region to region. In individual countries and regions such as Africa, the rates are drastically higher than in the rest of the world.
Inflation remains high worldwide
However, the survey found that long-term inflation expectations are showing a stagnating or even increasing trend. In the last quarter, expectations for 2027 had risen to 3.6 percent.
“Compared to the previous quarter, inflation expectations for this year have fallen again,” said ifo researcher Niklas Potrafke. “However, the experts assume that inflation rates worldwide will remain quite high in the medium term and are above the central banks’ inflation targets.”
Long-term normalization in Western Europe
In Germany, an inflation rate of 3.1 percent is expected this year. In March, the inflation rate in this country was 2.2 percent. Economists expect 4.2 percent for Austria, while the estimate for Switzerland is 1.8 percent. In Western Europe as a whole, inflation expectations for 2024 are well below the global average at 2.8 percent and in North America at 3.1 percent.
For 2027, economists in Western Europe (2.0 percent) and North America (2.3 percent) as well as Northern Europe (2.8 percent) and Southern Europe (2.6 percent) assume that inflation rates will almost return to the 2 percent inflation rate targeted by central banks to reach.
The regions with particularly high inflation expectations include South America and large parts of Africa. Inflation rates of more than 20 percent are predicted there. The highest long-term inflation rates are expected in East Africa at 41 percent and in North Africa at 18 percent.
What does a rising oil price mean?
In the fight against high inflation, many central banks have raised their interest rates significantly. With price pressure now easing, the likelihood that they will lower their interest rates again is increasing. The European Central Bank (ECB) has signaled its first interest rate cut for June. The US Federal Reserve is likely to follow suit in the second half of the year, as many economists expect.
But this is by no means certain. If oil prices were to rise permanently due to the crisis in the Middle East, the impact on inflation rates would be significant. The International Monetary Fund (IMF) makes the following calculation: If oil prices rise by 15 percent as a result of an intensified Middle East conflict, this will increase the global inflation rate by 0.7 percentage point, calculates IMF chief economist Pierre-Olivier Gourinchas.
This could also force the central banks to further postpone the interest rate turnaround. An escalation of the Iran-Israel conflict could still influence the decision, warned ECB Council member Gediminas Simkus. “The intensified conflict in the Middle East is now reshuffling the cards,” says VP Bank economist Gitzel.