Cost-of-living shocks cause ‘lasting deterioration’ in affordability: IMF

By the Editorial Team · Thursday, October 8, 2026

The IMF reported that inflation in essential goods like food and energy remains persistently high due to ongoing conflicts involving Iran and Ukraine, compounded by pandemic-related supply disruptions. This sustained price pressure is worsening global living costs, prompting central banks to raise interest rates despite the risk of slowing economic growth, especially in developing countries.

The International Monetary Fund (IMF) warned on October 6 that recent increases in prices for essential goods such as food and energy, driven largely by conflicts involving Iran and Ukraine, are proving more persistent than initially anticipated. These elevated costs, which have been sustained for several years, stemmed initially from supply chain disruptions related to the COVID-19 pandemic and were exacerbated by ongoing geopolitical tensions.

The war in Ukraine has significantly disrupted supply chains for various food products and energy supplies. Meanwhile, a conflict launched in February 2026 involving the United States, Israel, and Iran has further intensified pressure on global markets. The closure of a critical supply route in the Gulf has led to sharp rises in energy and fertilizer prices, compounding the cost pressures faced worldwide.

In a blog post accompanying its latest report, the IMF noted that prices for necessities continue to climb relative to other goods for more than a year after the onset of such crises, remaining elevated over the long term. This trend results in more than just temporary spikes; it leads to a sustained decline in the affordability of essential items compared with other expenses.

Households across the globe have struggled with rising living costs amid these overlapping shocks, as wage growth has frequently failed to keep pace with inflation. Reflecting these challenges, the IMF raised its global inflation forecast for 2026 to 4.7%, up from 4.1% the previous year.

The report, released ahead of the IMF's World Economic Outlook update scheduled next week, assesses the broader implications of recent cost-of-living crises over the past five years. It highlights that supply shocks—such as those triggered by the conflicts and pandemic—have effects that extend well beyond short-term inflationary bursts. Inflation rates tend to remain elevated long after food and energy price spikes begin, and inflation expectations have increased and persisted, complicating central banks' efforts to stabilize prices.

In response, many central banks have begun raising interest rates to curb inflation. While increasing policy rates can alleviate price pressures, it also risks slowing economic growth, a challenging trade-off particularly for developing countries that may be less able to withstand such slowdowns.

The IMF underscored the disproportionate impact of inflation on working-class households, where necessary expenditures on food and energy constitute a larger share of overall spending. Consequently, prolonged inflation exacerbates poverty and widens income inequality.

To address these issues, the IMF recommended avoiding broad-based subsidies and instead implementing targeted, temporary transfers aimed specifically at vulnerable populations. However, with global debt levels remaining high, particularly in low-income and developing nations, many governments face limited fiscal capacity to deploy such measures amid repeated economic shocks since the pandemic began.

This article was reported by synthesizing coverage from multiple independent news outlets to present a balanced, unbiased account. Read about our editorial standards. Spotted an error? Let us know.