Current inflation rates and trends in 2025
World CPI (consumer price index) inflation peaked at close to 9% in late 2022 due to a combination of snarled supply chains and pent-up demand as economies reopened following the global pandemic. By late 2024, CPI inflation had roughly halved to below 5% as both supply chains and consumer demand normalized. That said, price pressures are running well above the levels that prevailed during the 2010s. This is due to a combination of factors: Greater trade protectionism, robust wage growth, low unemployment and less restrictive fiscal policy.
The chart below shows how global inflation has evolved in recent years:
Our panelists’ CPI expectations are that 2025 inflation will average lower than the 2024 CPI inflation rate, though the slowdown will be softer than in 2024 vs 2023. Lower prices for food and energy will keep a lid on prices in 2025, though more global trade restrictions will prop up inflation.
Looking at energy prices specifically, our panelists expect prices for oil, coal and uranium to average lower in 2025 than over the past year. The green transition will likely cap prices for oil and coal, with oil prices additionally weighed on by rising non-OPEC output and eventual OPEC production hikes. Moreover, uranium prices will pull back following a bumper 2024. In contrast, U.S. and European gas prices are forecast to be higher, with U.S. prices boosted by stronger LNG exports.
Regarding regions, Asia is expected to see the lowest inflation rate in 2025. Price pressures in Asia will be depressed by the region’s huge manufacturing capacity plus sluggish demand in China. The G7 economies will see the second-lowest inflation rate, which should be broadly in line with their central banks’ 2.0% targets. Then will be the economies of the Middle East and North Africa, where price pressures will be contained by countries’ currency pegs to the USD plus hefty price subsidies in the Gulf economies. The economies of Latin America and Eastern Europe will see moderately high inflation, as sizable interest rate cuts spur currency weakening. Finally, sub-Saharan Africa is projected to record the highest inflation rate among world regions in 2025. A lack of independent monetary policy in some countries, coupled with FX depreciation and economic mismanagement in some areas, will spur price pressures on the continent.
Key factors influencing global inflation in 2025
Trade restrictions
Since Donald Trump was reelected as U.S. president in November, tariffs have been at the forefront of many economists’ minds and are the top upside risk to global inflation in 2025. Before his election victory, Trump had threatened higher tariffs on all U.S. imports of 10–20%, and tariffs as high as 60% on imports from China. Since the election, he has threatened to implement tariffs on Canada, Mexico and China as soon as he’s sworn in in January.
There are two key unknowns here. The first is to the extent to which Trump will raise tariffs, as well as by when and on which nations. Some of the threats he’s made in recent weeks—such as a blanket tariff on key partner Canada—could simply be negotiating tactics designed to extract concessions from other nations. The second unknown is how other countries will retaliate; if other nations respond to U.S. tariffs by aggressively tightening trade restrictions, this could result in a tariff spiral that notably raises world inflation.
The threat of trade restrictions doesn’t only stem from the U.S. Other large economies could continue to tighten their restrictions on imports of some Chinese goods—such as electric vehicles (EVs), batteries or solar panels—in order to protect domestic supply chains. 2024 already saw the EU and Canada impose tariffs on Chinese EVs for instance.
The threat of higher tariffs under Trump has already led our U.S. panel to upgrade their forecasts for consumer price index 2025 inflation:
That said, an illustration of the uncertainty provoked by the threat of tariffs is the wide spread among our panelists’ forecasts for average 2025 CPI inflation in the U.S. Panelists’ forecasts range from just 1.8% to 3.1%, as the chart below illustrates:
Conflict
All-out conflict between Israel and Iran is another upside risk to inflation, given the potential for disruptions to oil output from the Middle East—the region accounts for around a third of global crude supply. Likewise, a spread of the conflict in Ukraine to neighboring countries or war between China and the U.S. over Taiwan would boost global price pressures due to supply chain disruptions.
OPEC output decisions
The Organization of Petroleum Exporting Countries (OPEC) meets regularly to set global oil output. Over 2024, the cartel repeatedly extended its voluntary output cuts—most recently until March 2025. Further extensions of these cuts pose an upside risk to price pressures in 2025.
Labor market dynamics
The global unemployment rate is forecast to be broadly stable next year from this year at just below 5%, notably lower than the rate recorded during the 2010s. This should continue to exert some upward pressure on wages and prices. Lower-than-anticipated unemployment—perhaps due to unexpected fiscal loosening or tighter immigration restrictions—could cause inflation to come in higher than expected.
Black-swan events
Events such as pandemics, major cyber-attacks or natural disasters are impossible to predict but could substantially influence inflation were they to come to pass. They would likely also present central banks with the dilemma of needing to support economic activity while simultaneously reining in price pressures.
Policy responses to manage inflation in 2025: Monetary policy
Our panelists’ estimates are currently for the average central bank interest rate to fall by around 100 basis points next year, meaning monetary policy will still end the year tighter than it was before the pandemic. These rate cuts will occur in all world regions but should be particularly large in Eastern Europe—currently the region with the highest average policy rate. The evolution of U.S. tariffs is the key risk to the interest rate outlook. Large tariff hikes could cause the Federal Reserve to pause or slow monetary easing while simultaneously leading some other central banks to cut their own interest rates in order to support economic activity.
This trend is already evident in our daily forecasts. Since Trump’s election, our Consensus forecasts evidence how panelists are upgrading their forecasts for the Federal Reserve’s 2025 policy rate:
In contrast, our panelists have downgraded their forecasts for Canada’s policy rate following Trump’s threat to tax all Canadian imports to the U.S:
Insight from our panelists
On the outlook for inflation, EIU analysts said:
“Consumer price rises are now at or close to target in many economies; however, we do not forecast a period of below-target inflation in the post-pandemic economy. This is due to a combination of demand and supply factors that should keep inflation at or slightly above target over the next five years. On the demand side, a tightening in labour markets, reflecting demographic changes and tighter immigration controls, will keep demand firm through higher wages. On the supply side, the reshaping of supply chains, the wider application of tariffs and the likelihood of unpredictable climate conditions will also put upward pressure on prices. We forecast that inflation in developed markets will average 2.1% over our five-year forecast period, up from 1.5% in the 2010s.”
On inflation in advanced economies next year, Goldman Sachs analysts said:
“US core PCE inflation should slow to 2.4% by late 2025, higher than Goldman Sachs Research’s prior forecast of 2.0% but still a benign level. The forecast would rise to around 3% if the US imposes an across-the-board tariff of 10%. In the euro area, our economists expect core inflation to slow to 2% by late 2025. The risk of ultra-low inflation in Japan has abated.”
On inflation in Asia, Nomura analysts said:
“Disinflation is likely to sustain into 2025. Subdued commodity prices and weaker demand are likely to contain goods price inflation, while labor market rebalancing should enable faster services disinflation. A redirection of Chinese exports to the region provides an additional disinflationary impulse.”
On risks to the outlook, ING analysts said:
“Potential tariffs aren’t the only factor that could reignite inflation throughout the year. Investment plans and initiatives could easily reintroduce supply-side constraints in many economies, creating new inflationary pressures. Initially, these investments might lead to higher inflation, with the hope that they will eventually boost productivity and reduce inflationary pressures. Consequently, 2025 could mark the beginning of a stop-and-go inflation pattern, with shorter but more frequent cycles, potentially necessitating more active monetary policy or a prolonged, steady approach from central bankers.”
Originally published in December 2024