The global economic outlook teeters on a delicate balance, largely contingent on the trajectory of inflation.
The global economic outlook teeters on a delicate balance, largely contingent on the trajectory of inflation.
Despite signs of inflation easing, there exists the potential for a second surge in price pressures fueled by geopolitical conflicts and disruptions in the Red Sea's supply chains. Additionally, a stronger-than-anticipated labor market might stimulate consumer demand, leading to an uptick in prices.
The chart below displays the 2024 inflation projections worldwide, based on forecasts from the International Monetary Fund (IMF).
Is Global Inflation Heading Downward?
In 2024, global inflation is anticipated to decrease to 5.8%, down from the estimated annual average of 6.8% in 2023.
Projections indicate that tighter monetary policies, falling energy prices, and a cooling labor market will mitigate inflationary pressures. The following list showcases inflation projections for 190 countries:
Country Projected Annual Inflation Change 2024 🇻🇪 Venezuela 230.0% 🇿🇼 Zimbabwe 190.2% 🇸🇩 Sudan 127.3% 🇦🇷 Argentina 69.5% 🇹🇷 Türkiye 54.3% 🇪🇬 Egypt 25.9% 🇦🇴 Angola 25.6% 🇮🇷 Iran 25.0% 🇧🇮 Burundi 22.4% 🇸🇱 Sierra Leone 21.7% Venezuela, possessing the world's largest oil reserves, is expected to experience the highest inflation at 230%.
Over the past decade, the nation has grappled with hyperinflation, reaching a staggering 10 million percent in 2019. Since the lifting of U.S. sanctions last year, inflation has significantly dropped due to substantial cuts in government spending and the increased dollarization of the economy, strengthening the bolivar.
In the United States, a slowdown in economic growth and a softening labor market may alleviate inflation, projected to reach 2.6% in 2024. Although the Federal Reserve indicates that the worst is behind, unforeseen economic momentum could cloud the outcome. As of November 2023, American households held $290 billion in excess savings, potentially fueling ongoing consumer demand.
In Europe, inflation is expected to average 3.3% across advanced economies, with declining natural gas prices and modest GDP growth keeping inflation expectations in check.
China, the world's second-largest economy, grapples with falling prices due to challenges in the property market, which contributes to about a third of the country's economic growth. Amid sluggish economic activity, manufacturing slowdown, and low consumer confidence, inflation is forecasted to be 1.7%.
Factors that Could Reignite Inflation
While pandemic-driven inflation shocks appear to be subsiding, key risks could reignite inflation:
Geopolitical Pressures: Escalating shipping costs and disruptions in the Middle East and Red Sea conflict could drive up energy prices, contributing to higher inflation. Strong Consumer Demand: Accumulated excess savings may continue to stimulate economies, prompting central banks to remain vigilant. Persistent high wage growth, double the pre-pandemic average across advanced nations in 2023, could drive consumption and prices higher. Rising Housing Costs: Shelter, comprising about a third of the Consumer Price Index, poses significant inflationary risks. As of January 2024, U.S. shelter costs increased annually by 6%.
While potential risks persist, the global economy has displayed resilience thus far. Inflation projections suggest a gradual movement toward the 2% target, though the journey may be slow.