IMF Warns of Rising Global Inflation Fears as Middle East Conflict Resumes, Raises Price Outlook

[Financial News]  

The International Monetary Fund (IMF) warned on the 8th local time that renewed conflict in the Middle East would push global inflation higher, damage supply chains, and put pressure on financial markets.
According to the Financial Times, the IMF raised those concerns in its World Economic Outlook (WEO) report, which was released before U.S. President Donald Trump declared that the ceasefire memorandum of understanding (MOU) with Iran had ended.
The report said the global economy has so far weathered the shock from the Iran war better than expected, but warned that the threat of a new armed conflict is growing.
The IMF said prices would rise as a result. It raised its inflation forecast for this year to 4.7%, up 0.3 percentage points from the 4.4% projected in April. Inflation stood at 4.1% last year.
The report also lifted next year’s inflation forecast to 3.9% from 3.7% in April.
The forecast for global Gross Domestic Product (GDP) growth was cut to 3.0% from 3.1% in April. However, next year’s growth outlook was raised to 3.4% from the 3.2% projected in April. Growth last year was 3.5%.
The IMF’s revised WEO came as the United States and Iran clashed again despite the ceasefire MOU. Earlier that day, Trump told reporters at the NATO summit in Ankara, Türkiye, that the ceasefire with Iran was "over." Brent Crude Oil surged more than 6% on the news, topping $78 per barrel.
The IMF warned that the global economy "faces the most immediate risks stemming from developments in the Middle East" and that "a renewed escalation in geopolitical tensions will hurt growth and raise inflationary pressures."
The report said a renewed conflict would push up commodity prices, deepen supply shortages, and add pressure to exchange rates.
The IMF also noted that the relative calm in energy markets over the past few months, despite the U.S.-Iran conflict, has been largely due to releases from strategic reserves. It said those releases have continued, reducing stockpiles to their lowest level in years, and warned that "if supply disruptions persist or panic buying accelerates, stress levels could be reached."
The IMF added that if renewed clashes between the two sides again disrupt fertilizer and energy markets, threats to food security would worsen.
Petya Koeva Brooks, deputy director of the IMF’s research department, told the Financial Times that "the disinflation trend seen since early 2024 has stalled," adding that "the global economy has held up better than feared, but ... the inflation news may be less encouraging."
Meanwhile, the IMF expects the U.S. Federal Reserve System to raise its benchmark interest rate this year and then return to a rate-cutting cycle next year. The European Central Bank (ECB), which raised rates last month, is also expected to deliver additional hikes this year.

[email protected] Song Kyung-jae Reporter