Economists raise inflation forecasts for 39 of 50 major economies amid Middle East war

Nearly 500 economists surveyed by Reuters ↗ 6.75% have raised their inflation forecasts for 39 of 50 major economies this year, warning that persistently high prices will continue to weigh on the global economy as the war in the Middle East grinds on with no resolution in sight.binance+1

The poll, conducted from June 29 to July 27, marks the latest in a series of increasingly grim assessments from forecasters grappling with the economic fallout of the U.S.-Israeli conflict with Iran, which has kept oil prices elevated near the $100-per-barrel mark for much of 2026.aol+1

A Stagflationary Shock

Bank of America ↗ 0.56% Managing Director Claudio Irigoyen has described the war's economic impact as a "mild stagflationary shock," warning that markets are likely underestimating inflation persistence. "This is consistent with a stagflationary shock that would impact inflation earlier and more prominently than GDP growth, based on our new base case with oil prices remaining close to $100/bbl for the rest of 2026," Irigoyen wrote in a research note earlier this year.thewealthadvisor+1

BofA cut its 2026 global growth estimate by 40 basis points to 3.1% and raised its global inflation forecast by 90 basis points to 3.3%. Growth forecasts in the Reuters poll were also cut for multiple economies, reflecting the drag from elevated energy costs on consumer spending and business confidence.investing+1

Central Banks in a Bind

The inflation persistence has reshaped monetary policy expectations worldwide. A separate Reuters poll published July 21 found that the Federal Reserve is expected to hold its key interest rate steady at 3.50%-3.75% through the rest of 2026, with a majority of economists now seeing a "high" chance of a rate hike this year — a reversal from just weeks earlier.reuters

The World Bank's chief economist Indermit Gill warned last week that an escalation of hostilities could drive global growth as low as 1.3% and push headline inflation to 4.5%. The European Commission has already revised euro zone growth down to 0.9% for 2026 while raising its inflation forecast to 3.0% from a previous 1.9%.reuters+1

Oil Remains the Key Variable

The trajectory of oil prices remains the central uncertainty for the inflation outlook. Even under optimistic scenarios, BofA does not see crude returning to its pre-conflict range in the high $60s to low $70s, instead projecting a "new normal" around $90-95 per barrel as inventories are replenished and Middle Eastern supply chains recover.economictimes

IMF Managing Director Kristalina Georgieva has noted that a sustained 10% rise in oil prices could add 40 basis points to global inflation. With U.S. 30-year Treasury yields remaining above 5% for their longest stretch since 2007, the economic pressures from the conflict show few signs of abating.reuters+1