The IMF projects US inflation will stay elevated through 2027 as the Iran conflict's energy price shock lingers, even as the broader economic damage proves less severe than initially feared.
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IMF warns Iran war will keep US inflation elevated through 2027
The International Monetary Fund said the Iran conflict will keep US inflation elevated through 2027, projecting global price growth of 4.7% this year as the disinflation trend stalls.
"Energy-related fiscal support, especially price-distorting measures, should be removed as the energy shock abates to preserve fiscal buffers," the IMF said in its latest World Economic Outlook report published Wednesday.
Global growth is projected at 3% in 2026 and 3.4% in 2027, down from an average of 3.5% in 2024 and 2025, as the negative supply shock from higher energy prices and supply-chain disruptions partially offsets demand driven by artificial intelligence adoption. US gross domestic product is expected to expand 2.3% this year and 2.2% in 2027.
The persistence of above-target inflation through 2027 could delay Federal Reserve rate cuts, keeping borrowing costs elevated for consumers and businesses. The IMF warned that renewed Middle East conflict "looms large" and could extend commodity price volatility, with net energy importers facing a more pronounced drag.
Inflation Forecast Revised Higher
The IMF upgraded its inflation forecast to 4.7% for 2026 from 4.1% in 2025, before a projected decline to 3.9% in 2027. "These projections indicate that the disinflation trend in place since the beginning of 2024 has stalled," the fund said. The Bank of England had previously outlined a worst-case scenario in which oil prices rose above $130 a barrel and UK inflation peaked at 6%, though an interim US-Iran peace deal helped bring down crude prices. UK inflation currently stands at 2.8% and is expected to fall to the Bank's 2% target by mid-2027, faster than previously forecast.
Divergent Regional Impact
The euro area economy is expected to grow 0.9% in 2026 and 1.2% in 2027, with the weaker 2026 forecast reflecting a sizable negative carryover from the first quarter driven largely by Ireland, where GDP contracted sharply as the frontloading of exports to avoid US tariffs unwound. As a net energy exporter, the US has been relatively insulated from the conflict's direct economic hit, while net energy importers face a more pronounced drag from higher energy prices unless lifted by technology-related activity, the IMF said. The fund cautioned countries against using broad-based subsidies, tax cuts and price controls to respond to higher energy prices, calling such measures "poorly targeted, fiscally costly and politically difficult to unwind."
The IMF's assessment comes as the US-Iran ceasefire deal showed signs of strain, with President Donald Trump declaring the truce was over and oil prices jumping. The fund said the global economy had "so far weathered the shock from the war better than feared," but cautioned that the fallout from higher energy prices and supply-chain disruptions was still to fully play out.
This article is for informational purposes only and does not constitute investment advice.
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