Global inflation forecast:
Are rate hikes on the horizon?
- The energy price spike and strong global growth momentum are stoking inflation, paving the way for monetary policy tightening.
- Central bank rhetoric has recently become more hawkish, especially in emerging markets.
- In developed markets, the European Central Bank and the Bank of Japan are expected to raise policy rates in June.
Macroeconomic conditions are shifting rapidly as the geopolitical landscape evolves. At the start of the year, J.P. Morgan Global Research forecasted that global inflation would remain stable through 2026. In recent weeks, however, inflation concerns have returned to the fore, particularly as energy prices remain elevated due to the ongoing Middle East conflict.
“Two recent developments are upending the debate about inflation inertia and the monetary policy path. Firstly, the energy price spike is now raising inflation and generating a sharp squeeze on household purchasing power that could intensify if the Middle East conflict keeps the Strait of Hormuz closed. The risk of a negative growth shock raising unemployment rates is thus high — an outcome that would ultimately prove disinflationary and warrant lower policy rates,” said Bruce Kasman, chief global economist at J.P. Morgan.
On the other hand, a surge in global goods demand is contributing to inflationary concerns. Global factory output accelerated to an annualized rate (ar) of 3.6% in the first quarter, tracking well above J.P. Morgan Global Research forecasts. In addition, supply bottlenecks in the tech sector, as well as rising import and transportation costs, are putting upward pressure on core goods prices, which are forecast to increase by an annualized rate of 2% this year, compared with 0.9% during 2024–2025.
“If our baseline view is realized, that the Strait of Hormuz soon reopens and crude oil prices linger close to $100 per barrel (bbl), a mix of goods sector cost pressures, tightening labor markets and firm pricing power could push core inflation well above 3%,” Kasman said. “Such an outcome would set the stage for a new round of global monetary policy tightening.”
Will central banks hike rates in 2026?
While interest rates across the globe have largely been on hold since the Middle East conflict began, central bank rhetoric has recently become more hawkish, suggesting that rate hikes could be on the horizon.
This is reflected in J.P. Morgan’s proprietary Hawk-Dove Score (HDS), which has risen since the start of the year. The tool synthesizes central bank speeches and policy statements, with higher scores indicating a hawkish stance and lower scores signaling a dovish posture.
Global central bank speak has become more hawkish
J.P. Morgan’s Hawk-Dove Score, which is a barometer of central bank sentiment, has risen since the start of the year in line with core inflation.
“The hawkish shift has been most pronounced in emerging markets, where central banks are more sensitive to headline inflation, and where inflation expectations are typically less well-anchored. We have been trimming cuts and adding hikes across the region in recent weeks,” Kasman noted.
Similarly in developed markets, a modest hiking cycle is taking hold. “Following action by the Reserve Bank of Australia, we look for June hikes from the European Central Bank and the Bank of Japan, followed by moves in Scandinavia and New Zealand next quarter,” Kasman said.
As for the Federal Reserve, J.P. Morgan Global Research expects to see a rate hike in 2027, with risks tilted toward an earlier move. In line with this higher-for-longer narrative, the minutes from the Federal Open Market Committee’s (FOMC) April meeting were relatively hawkish, noting that “some policy firming would likely become appropriate if inflation were to continue to run persistently above 2%.”
Are consumers holding up?
Despite rising prices, consumers have largely held up so far. “It is encouraging to see global real retail sales (excluding China) display a solid increase in March, accelerating to a 2.7%ar over the past three months. Consumer spending is softer in Europe and Japan, and still struggling in China, but this contrasts with solid readings through March elsewhere,” Kasman observed.
In the same vein, the U.S. April retail sales report pointed to solid overall spending gains despite a pullback in real spending on gasoline, with tax refunds from the One Big Beautiful Bill Act (OBBBA) likely cushioning the blow. Headline retail sales rose 0.5% month over month, while real consumer spending, which accounts for inflation by removing the effects of rising prices, increased between 0.1% and 0.2%.
However, the strength of the consumer could be called into question in the coming months if inflationary pressures persist, especially if energy bills spike further. As Kasman summed up, “the immediate issue is the resilience of consumers through this squeeze.”
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