Economists See Sticky Global Inflation Into Next Year as Middle East Conflict, AI Investment Reshape Outlook

Global inflation will persist well into next year, according to hundreds of economists in a Reuters survey, who now see price pressures becoming entrenched beyond the energy-cost shock tied to the Middle East conflict.

More than 500 economists surveyed globally this month raised their 2027 inflation forecasts for 31 of the 50 economies polled, and growth forecasts for 23, the poll showed. The revisions signal that inflation worries are broadening and now reaching economies that typically experience low price pressures — economists raised 2027 inflation forecasts for 15 of 21 developed economies covered.

The shift marks a departure from two previous polls in April and July, which painted a weak-growth, high-inflation scenario. The latest forecasts lean toward price pressures accompanying more robust economic performance.

"I am getting much more concerned about inflation again," Janet Henry, global chief economist at HSBC, said in the poll. "The longer the situation evolves and escalates in the Middle East and the higher the broad basket of price pressures builds, the greater the likelihood that we get not just higher but more persistent inflation."

Crude oil prices have stayed above $100 a barrel since October 7, hit a six-month high of over $117 last week, and are up more than 60% since the US-Israeli war with Iran began almost eight months ago, the poll noted.

Cumulatively, median forecasts for 2027 inflation over the past three quarterly polls have risen by 0.7 percentage points for Britain, 0.5 percentage points for the euro zone, and 0.2 percentage points for the US. They have risen by 0.4 percentage points for India and 0.5 percentage point for Brazil.

Growth Holds Up, Backed by AI Investment

The resilience comes despite cost-of-living pressures squeezing households and shaping national politics. More than $1 trillion of investment in artificial intelligence technology globally since last year has made some economies more resilient, the poll found.

"Higher energy prices continue to ripple through the global economy, but economic activity remains resilient, supported by the AI-led investment cycle and firmer-than-expected activity across several regions," Seth Carpenter, global chief economist at Morgan Stanley, said in a note. "The inflation picture has become more complex as signs of energy pass-through into core measures are beginning to emerge."

Economists upgraded global growth forecasts for both this year and next, to 3.0% and 3.2%, respectively, from 2.9% and 3.1% in the July poll. The 2027 forecast remains lower than the 3.4% the International Monetary Fund is predicting.

The US, which leads in AI capital expenditure that has become the main driver of domestic growth, is forecast to expand 2.3% this year and 2.1% in 2027.

Policy and Political Implications

Most central banks have raised interest rates only a few times or not at all, but more could come if inflation pressures broaden, the poll indicated. A global rout in bond markets in recent months has also tightened financial conditions through higher yields.

The effects of rising prices on household budgets have taken center stage in political campaigns worldwide. Opinion polls show voters ahead of US midterm elections on November 3 are preoccupied with these issues, and Brazil's presidential election — which gave incumbent Luiz Inacio Lula da Silva his fourth non-consecutive term — was also fought on cost-of-living issues, according to the survey.

Even forecasters who did not anticipate a quick end to the war are now sounding more concerned about inflation resurgence, particularly given the resilience of global growth, the poll found.