IMF warns of ongoing inflation risk to global economy

The International Monetary Fund on Tuesday modestly upgraded its outlook for the world economy, but warned of ongoing risks including persistent inflation and geopolitical turmoil. 

The Washington-based institution said in its latest World Economic Outlook that global gross domestic product will grow by 3.2% this year – which represents a 0.1 percentage point bump from its January forecast – and expand at that same pace in 2025.

"Despite gloomy predictions, the global economy remains remarkably resilient, with steady growth and inflation slowing almost as quickly as it rose," said Pierre-Olivier Gourinchas, the IMF’s chief economist, in a blog post.

The latest figures suggest the U.S. economy is likely to grow 2.7% this year and 1.9% in 2025.

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Still, Gourinchas cautioned that while inflation trends are promising, "we are not there yet." 

The IMF outlook comes one week after the Labor Department reported that inflation rose 3.5% in March, the highest level since September 2023, amid a resurgence in gasoline and rent costs. It marked the third straight month that inflation came in hotter than expected, underscoring the difficulty of taming price growth. 

Other parts of the report also pointed to stubborn price pressures within the economy. Core prices, which exclude the more volatile measurements of food and energy, climbed 0.4%, as they did in January and February, for an annual gain of 3.8%. Those figures are also higher than estimates.

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"Somewhat worryingly, progress toward inflation targets has somewhat stalled since the beginning of the year," Gourinchas said. "This could be a temporary setback, but there are reasons to remain vigilant."

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The fund also issued a warning to the U.S. about the astronomic level of government spending, which it called "out of line with what is needed for long-term fiscal stability."

The U.S. national debt topped $34 trillion in January after a burst of spending by President Biden and Democratic lawmakers and is well on its way to surpassing $35 trillion. But that massive amount of spending – though it has helped to propel the economy – also risks reigniting inflation and undermining financial stability worldwide by increasing global funding costs.

"Something will have to give," the IMF said.