IMF warns cost-of-living shocks cause ‘lasting deterioration’ in affordability

On October 6, the International Monetary Fund (IMF) cautioned that persistent price surges for essentials such as food and energy, driven by conflicts in Iran and Ukraine, may lead to long-term affordability issues, as reported by ST. The IMF's new report reveals that global commodity prices have remained high for several years, primarily due to supply chain disruptions during the pandemic and the ensuing wars.

"We find that the prices of necessities relative to other goods continue rising for more than a year after the start of a typical episode, and remain persistently elevated," the IMF stated in a blog post with its report. Consequently, individuals face not just a temporary increase in food and energy costs but a lasting decline in the affordability of basic necessities compared to other goods.

Households globally have grappled with rising costs due to the wars and pandemic, with wages failing to keep pace with sustained price pressures. The ongoing Iran war, initiated in February 2026, has contributed to global inflation, prompting the IMF to raise its inflation forecast to 4.7% for 2026 from 4.1% the previous year. The IMF is set to release the primary part of its World Economic Outlook update next week, encompassing new global growth and inflation projections.

This report, part of that release, emphasizes the lessons from the cost-of-living crises over the past five years. The IMF cautioned that the ramifications of supply shocks extend far beyond a brief period of elevated inflation. Central banks worldwide have started raising interest rates to curb inflation, a measure that can curb prices but also potentially slow economic activity, posing a challenge for developing nations that may not afford such slowdowns.

The report highlighted that persistent inflationary pressures pose a threat to macroeconomic stability for numerous countries, and inflation expectations often stay above pre-crisis levels for years, complicating central banks' efforts to control inflation. The IMF argued that the impact of these price hikes is not evenly distributed, disproportionately affecting working-class families who spend a larger portion of their monthly income on essentials, making inflation a significant factor in escalating poverty and income inequality.

The IMF advocated for countries to refrain from implementing broad-based subsidies to address such crises and instead provide "targeted and temporary transfers" to those most in need. However, with global debt levels at elevated levels, many low-income and developing nations lack the fiscal capacity to implement such measures, particularly given the recurrent shocks since the pandemic.