IMF Says Cost-of-Living Crises Are Driving a Lasting Rise in Inflation Expectations

The International Monetary Fund has warned that successive cost-of-living crises are fuelling a lasting rise in inflation expectations among households worldwide, as surging food and energy costs continue to erode real wages.

According to the fund, the impact of these price pressures has fallen disproportionately on poorer households, which typically spend a larger share of their income on essentials such as food, fuel and energy. As prices for these necessities climb, lower-income families have less room to absorb the additional cost, deepening the squeeze on their living standards.

Inflation expectations proving sticky

The IMF's assessment points to a concerning dynamic in which repeated bouts of elevated inflation appear to be shifting public expectations about future price rises on a more lasting basis, rather than fading once individual price shocks pass. Economists generally view persistently high inflation expectations as a risk factor, since they can feed into wage demands and pricing decisions, potentially making inflation harder to bring back down even after the initial drivers ease.

The fund's warning adds to a broader debate among policymakers about how central banks and governments should respond to cost-of-living pressures that have weighed on households across both advanced and developing economies in recent years. Targeted support for lower-income households, alongside efforts to stabilise food and energy markets, has been among the measures discussed by international institutions seeking to limit the damage from sustained price pressures.

The IMF has previously highlighted cost-of-living pressures as a global concern spanning both wealthy and lower-income economies, though the specific countries most affected were not detailed in the latest assessment.