Key facts
- Sharp spikes in food and energy prices are likely to become more common, according to the IMF.
- Cost-of-living crises drive inflation expectations higher for longer, worsen poverty, and threaten economic stability.
- IMF research suggests 23 million more people fell below the extreme poverty line from 2021 to 2024 than previously calculated.
- Near- and medium-term inflation expectations remained elevated for up to three years after a crisis.
- Targeted transfers are the most effective way for countries to protect vulnerable populations while preserving price signals, the IMF said.
Sharp increases in food and energy prices are likely to become more frequent, driving inflation expectations higher for longer, worsening poverty, and threatening economic stability, according to International Monetary Fund research released on Tuesday. The IMF's analysis examined three decades of government strategies to mitigate price surges and introduced a new economic model that accounts for the higher inflation experienced by poorer households.
The new model indicated a gap of 0.8 percentage point to standard inflation measures, suggesting that 23 million more people fell below the extreme poverty line from 2021 to 2024 than previously calculated. Chiara Maggi, the IMF economist who co-led the research, stated that cost-of-living crises impact price stability, reduce living standards, and worsen inequality.
The IMF noted that inflation expectations remained elevated for up to three years after the onset of a crisis, potentially leading to interest rate increases. The fund recommended targeted transfers as the most effective way for countries to protect vulnerable populations while preserving price signals, noting that price suppression measures could be significantly more costly.
Shantayanan Devarajan, a Georgetown University professor and former World Bank economist, highlighted the severe crisis facing developing countries due to the combined impact of higher oil prices, high debt levels, increased borrowing costs, and the El Niño weather pattern, stating that overall growth in low-income countries was at an all-time low.