The International Monetary Fund (IMF) has announced a positive outlook on global inflation, stating that it has largely been subdued worldwide. This optimistic assessment comes in contrast to the organization's previous cautionary stance just three months ago, when it warned that the fight against inflation had reached a standstill. The IMF's latest World Economic Outlook report indicates that in most regions, inflation rates are now close to the targets set by central banks, marking a significant achievement without the occurrence of a global recession.

"The global struggle against inflation appears to have been largely victorious, even though some nations continue to face price pressures," the IMF stated. "Inflation in services is still notably high, almost twice the levels seen before the pandemic," the report continued, highlighting that a few developing economies have had to reinitiate interest rate hikes following a resurgence of inflation. The IMF projects that global inflation will moderate to 5.8% this year, slightly below its previous July forecast of 5.9%, and is expected to further decline to 3.5% by the end of the following year. This latter figure is marginally below the average experienced during the two decades preceding the pandemic.

This favorable economic forecast arrives just weeks ahead of the US elections, where inflation has become a pivotal issue for voters. Americans frequently express concerns about the economy and the cost of living, with many feeling that their earnings are not stretching as far as they once did. Data from the US Consumer Price Index reveals that the cost of goods and services was approximately 20% higher in August compared to February 2020, just before the global spread of COVID-19, even though the rate of annual price increases has significantly slowed, nearing the Federal Reserve's 2% target.

The Federal Reserve, which reduced interest rates for the first time in over four years last month, has not yet claimed victory over inflation. "We're certainly not declaring mission accomplished or anything similar," Federal Reserve Chair Jerome Powell stated to reporters following the substantial rate cut in September. Similarly, European Central Bank President Christine Lagarde has refrained from declaring an end to high inflation in Europe. "Inflation is on the correct path," she remarked at Bloomberg's annual Global Regulatory Forum on Tuesday, later adding that the central bank had not yet "broken the back of inflation."

While the potential for inflation to rise unexpectedly is diminishing globally, the IMF warns that threats to economic growth are increasing. "Downside risks are escalating and now predominate the outlook," the agency stated, citing the risk of higher commodity prices due to conflicts in the Middle East and the adoption of increased tariffs and protectionist industrial policies by governments. The IMF maintains its global economic growth forecast at 3.2% for this year, as projected in July. However, the agency has revised its US growth forecast upward to 2.8%, which is 0.2 percentage points higher than the previous projection three months ago.

In less favorable economic news for Europe, the economy of the 20 countries that use the euro is anticipated to expand by only 0.8%, 0.1 percentage point lower than the July prediction. The IMF has also downgraded its 2024 growth forecast for China, where the government has recently introduced a series of stimulus measures to support the struggling economy. The agency now expects China's economy to grow by 4.8% this year, which is 0.2 percentage points below its July forecast. India's growth is projected to be 7%, consistent with the prediction from three months ago.

The IMF emphasizes that much more needs to be done globally "to enhance growth prospects and increase productivity." It cautions against trade policy measures aimed at protecting local industries and workers, arguing that these often lead to retaliation by other nations and fail to improve living standards. "Economic growth must instead stem from ambitious domestic reforms that foster technology and innovation, enhance competition and resource allocation, promote further economic integration, and stimulate productive private investment," the IMF argues.

As the global economy navigates the aftermath of the pandemic, the IMF's report serves as a reminder of the delicate balance between managing inflation and fostering growth. While the battle against inflation appears to have been largely won, the ongoing vigilance and strategic policy-making will be crucial in sustaining this victory and addressing the emerging challenges to economic growth.