Stubbornly high inflation in advanced economies threatens "higher-for-even-longer interest rates", the International Monetary Fund warns, citing lingering services price pressures and escalating trade tensions.
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Australia's economic growth outlook has also been slightly trimmed by the IMF to 1.4 per cent for 2024 from the 1.5 per cent forecast in April.
Gross domestic product is then expected to expand two per cent in 2025, unchanged from previous forecasts.
The IMF's latest economic assessment lands as economists warn persistent price pressures threaten the Reserve Bank of Australia's inflation fight, which could lead to interest rates staying higher longer.
Much hinges on June quarter inflation data out later in the month, with a strong outcome potentially putting another hike on the table at the August cash rate meeting.
Globally, the IMF's growth projections were unchanged and inflation had slowed enough to be broadly on track for a soft landing.
Yet deteriorating public finances as well as slowing disinflation progress, particularly due to persistent services price pressures, were highlighted as downside risks to the outlook.
Possible escalation of trade tensions was also identified as potential source of bumpiness along the disinflation path, threatening higher costs for imported goods along the supply chain.
"The risk of elevated inflation has raised the prospects of higher-for-even-longer interest rates, which in turn increases external, fiscal, and financial risks," the report said.
Yet recent inflation data for June out of the United States suggests price pressures are subsiding, and eased concerns of a second-round inflation increase in the major economy.
AMP Australia economist Diana Mousina said Australia should end up following the same inflation trajectory as its global peers, despite the past few months of data surprising to the upside.
Australia's path back from high price growth was on a delay due to "differences in industry structure, regulation and impacts of government policy", the economist said.
Treasurer Jim Chalmers said the IMF report was a clear reminder the last mile to bring inflation down "can be a bit harder".
"The report rightly highlights that uncertainty in the global economy in areas like international trade are contributing to inflationary pressures all over the world and Australia is not immune to those pressures," he said.
IMF economic counsellor Pierre-Olivier Gourinchas said the gradual dismantling of the multilateral trading system was a key concern.
"More countries are now going their own way, imposing unilateral tariffs or industrial policy measures whose compliance with World Trade Organization rules is questionable at best," he said.
Governments were also urged to rebuild fiscal buffers, with deteriorating public finances leaving many countries "more vulnerable than foreseen before the pandemic", Professor Gourinchas said.
Australian Associated Press