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Although energy prices remain the principal driver of recent inflationary pressures, the transmission of
these costs has become increasingly broad-based. According to S&P Global Ratings, higher fuel prices have
raised transportation and logistics costs, while elevated fertilizer prices are expected to place additional
upward pressure on agricultural production costs and food prices over the coming months. Since food
constitutes a significant share of consumer expenditure across many emerging market economies,
second-round effects from higher food prices are expected to remain an important source of inflationary
risk. Climate-related disruptions, including the expected emergence of El Niño conditions, could further
intensify food inflation by affecting agricultural output, water availability and hydropower generation in
several emerging economies.

Figure 3: Inflation Expectations Rise, but Mostly in the Short Term

Source: IMF World Economic Outlook Update, July 2026

The United Nations World Economic Situation and Prospects (WESP) further observes that although
inflation has eased considerably from the exceptionally high levels recorded during the post-pandemic
period, the global cost-of-living challenge remains unresolved because overall price levels continue to
remain elevated. Households, particularly in developing economies where food and energy account for a
larger share of consumption, continue to experience pressure on purchasing power. The report also
highlights that geopolitical fragmentation, climate-related disruptions, recurring supply-chain shocks and
trade restrictions are increasingly making inflation more structural in nature, thereby posing continued
challenges for monetary authorities and long-term economic growth.

The inflation outlook also differs significantly across advanced and developing economies. According to
the UN WESP Mid-year Update, inflation in developed economies is projected to increase from 2.6 per
cent in 2025 to 2.9 per cent in 2026, while inflation in developing economies is expected to accelerate
from 4.2 per cent to 5.2 per cent, reflecting the stronger pass-through of higher energy, transportation

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