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Iran & low-income countries push IMF’s 2024 global inflation forecast upward

Trade deficit narrows 15.2% YoY in 11MFY24
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April 19, 2024 (MLN): The International Monetary Fund (IMF) has revised its global inflation forecast by 0.1 percentage point in 2024 from the January 2024 projections due to an upside revision of 0.2 percentage point in emerging markets and developing economies, mainly on account of increases in Iran and a few other low-income countries.

Accordingly, global headline inflation is expected to fall from an annual average of 6.8% in 2023 to 5.9% in 2024 and 4.5% in 2025.

A more front-loaded decline is expected for advanced economies, with inflation falling by 2 percentage points in 2024, while it declines in 2025 only in emerging markets and developing economies.

Advanced economies are also expected to return sooner to rates near their pre-pandemic (2017–19) average, with inflation averaging 2% in 2025, about a year before emerging market and developing economies are expected to return to their prepandemic average near 5%.

At the same time, a great deal of differentiation is expected among emerging market and developing economies, with the inflation forecast ranging among the five regions from only 2.4% for emerging and developing Asia, reflecting subdued inflation in China as well as in Thailand, to 18.8 percent for emerging and developing Europe, reflecting elevated inflation in Türkiye.

The fall in global inflation in 2024 reflects a broad-based decline in global core inflation.

This dynamic differs from that in 2023, when global core inflation fell a little on an annual average basis and headline inflation declined mainly on account of lower fuel and food price inflation.

In 2024, core inflation is expected to fall by 1.2 percentage points after contracting by just 0.2 percentage points in 2023.

As is the case for headline inflation, the fall in core inflation is faster for advanced economies.

The drivers of declining core inflation differ by country but include the effects of still-tight monetary policies, a related softening in labor markets, and fading pass-through effects from earlier declines in relative prices, notably in that of energy.

Among economies with an inflation target, headline inflation is projected to be 0.5 percentage point above target (or the midpoint of the target range) for the median economy by the third quarter of 2024 on a quarter-over-quarter basis (Figure 1.16).

For advanced economies, however, the median gap between actual and target is expected to be just 0.3 percentage point by the third quarter of 2024, implying a faster return to target levels than in emerging market and developing economies.

Most economies are expected to reach levels within a quarter of a percentage point of their targets (or the midpoints of their target ranges) by the second quarter of 2025.

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Posted on: 2024-04-19T12:33:04+05:00