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Global inflation to stay elevated as oil-driven shocks lift 2026 outlook and delay disinflation
World consumer inflation is now seen at 4% in 2026 and 3.3% in 2027 as oil shocks, policy frictions and persistent price pressures delay a return to pre-crisis levels
- PUBLISHED: Thu 28 May 2026, 5:08 PM
Global consumer inflation is projected to rise more than previously expected this year and remain elevated into 2027, as oil price shocks and second-round effects continue to feed through the global economy, according to research by Oxford Economics.
The latest forecast shows world consumer inflation increasing by 0.7 percentage points to 4 per cent year-on-year in 2026, alongside an upward revision of 0.3 percentage points to 3.3 per cent in 2027, the think tank said in its latest report. The revisions follow one of the sharpest single-quarter oil price spikes in three decades, highlighting the continued sensitivity of global price dynamics to energy markets.
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The analysis suggests that while higher inflation this year is largely unavoidable, uncertainty remains over how quickly inflation will return to pre-shock levels. Risks are skewed to the upside, particularly due to persistent second-round effects from higher energy costs and supply-side constraints.
Across advanced economies, inflation pressures are expected to be more enduring. In the US, inflation could run around 0.5 percentage points above baseline projections of 2.1 per cent in 2027 and 1.8 per cent in 2028, reflecting stronger second-round effects and weaker transmission of monetary policy. China is also likely to see more persistent, albeit smaller, inflation impacts.
The modelling shows that beyond the initial oil shock, firms tend to gradually raise prices and cut production to protect margins, amplifying inflation over time. These dynamics typically peak three to four quarters after the initial shock but can persist longer where price-setting behaviour is backward-looking and consumption patterns remain sticky.
Demand, often viewed as a moderating force, is playing a more limited role in easing inflation than policymakers assume. The weakening link between interest rates, economic activity and employment is reducing the effectiveness of monetary tightening, particularly in the US, where policy decisions must balance inflation control against employment risks.
Policy divergence is also shaping inflation outcomes globally. In emerging markets excluding China, tighter monetary policy and more price-sensitive consumers are expected to dampen inflation more, with risks tilted toward undershooting forecasts over the medium term.
“It reaffirms our above-consensus view on inflation for this year but is an upside risk to our 2027 forecasts,” wrote Felipe Camargo, Lead Global Economist at Oxford Economics and author of the report. “These risks are most prominent in developed markets, particularly the US, but also in China.”
At the same time, fiscal responses — such as subsidies and automatic stabilisers — are complicating the inflation outlook. Government efforts to shield consumers from higher energy costs are sustaining demand and prolonging price pressures, working against central banks’ attempts to slow inflation.
Overall, the outlook points to a prolonged period of tighter monetary conditions globally. With inflation risks concentrated on the upside — particularly in advanced economies — central banks may delay rate cuts, reinforcing a “higher-for-longer” policy environment and extending the timeline for a full return to pre-shock inflation levels.
Associate Editor Somshankar Bandyopadhyay brings more than three decades of experience to the KT newsroom. Currently, he manages the news production of the business section, ensuring that the top economic and business news of the day reaches its readers.