Global headline inflation is expected to edge higher in 2026 as the world economy grapples with the combined effects of geopolitical tensions and rapid technological transformation, according to the International Monetary Fund.
In its July 2026 World Economic Outlook Update, the IMF projected that global headline inflation will increase from 4.1 per cent in 2025 to 4.7 per cent in 2026, signalling a pause in the disinflation trend that had been underway since early 2024.
The Washington-based financial institution also forecast global economic growth of 3.0 per cent in 2026 and 3.4 per cent in 2027, below the average growth rate of 3.5 per cent recorded between 2024 and 2025.
According to the report, released through the IMF’s official X handle, the global economy is currently navigating the competing forces of the ongoing conflict in the Middle East and the accelerating adoption of artificial intelligence, with both developments shaping growth prospects across regions.
The Fund said the economic impact differs widely depending on countries’ exposure to the conflict and their level of participation in the global technology value chain.
“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 noted that while the global economy continues to expand, the latest projections indicate that the steady decline in inflation recorded since the beginning of 2024 has now stalled, largely due to renewed pressure from energy markets.
The report warned that downside risks remain significant, with a renewed escalation of hostilities in the Middle East posing one of the biggest threats to the global outlook.
According to the Fund, a prolonged conflict could sustain commodity price volatility, disrupt international supply chains and tighten global financial conditions, making it more difficult for countries to tame inflation.
The IMF also cautioned that increasing trade fragmentation could weaken global economic output while pushing prices higher, adding that an abrupt correction in expectations surrounding high-tech industries could create additional economic uncertainty.
Despite these concerns, the Fund identified several factors that could improve the outlook. These include a faster-than-anticipated stabilisation of energy markets, stronger investment in artificial intelligence and productivity-enhancing technologies, as well as structural reforms capable of supporting medium-term economic growth.
To help economies navigate the uncertain environment, the IMF urged policymakers to remain focused on restoring price stability through credible monetary policy, transparent communication and preserving the independence of central banks.
The institution also advised governments to rebuild fiscal buffers while ensuring that any fiscal intervention remains temporary and well-targeted to protect vulnerable households without undermining broader economic stability.
The report stated:
“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.”
The latest projections come as global headline inflation, driven largely by rising energy prices, increased for the third consecutive month on a year-on-year basis in May, reversing the downward trajectory that had persisted since 2024.
The IMF further noted that although sequential headline inflation surged by nearly four percentage points between February and April, underlying or core inflation has remained relatively stable across most economies, suggesting that energy prices continue to be the principal driver of recent inflationary pressures.