Global Inflation Forecasts Revised Sharply Higher as Oil Shock Persists
Major forecasters have significantly raised inflation projections for 2026 and 2027 due to sustained elevated oil prices from the Middle East conflict. Central banks across Europe and the U.S. face mounting pressure to maintain higher interest rates longer to combat these price pressures.
Oil Drives Broad-Based Price Pressures
Dated Brent crude is forecast to end this year well above the US$72/b projection in April, with the elevation of crude prices now also expected to persist into next year, resulting in annual average prices of Dated Brent in 2026 and 2027 around 100% and 60% higher than assumed in pre-conflict forecasts.
Central Bank Policy Tightening Expected
Key changes to forecasts include adding additional rate hikes in Western Europe this year, led by the European Central Bank, contributing to projected quarter-over-quarter real GDP contractions in many of the region's largest economies. The base case for the US Federal Reserve is still that the next move in policy rates will be downwards under its new chair, though this has been pushed out to mid-2027, while futures markets have recently moved to discount a higher likelihood of a hike than a cut next year following recent strong US inflation data.
Economic Growth at Risk
Real GDP contractions, albeit short-lived and modest in scale, are now expected in many of Europe's largest economies, including Germany, France, Italy and the UK.