A new model suggests 23 million more people fell below the extreme-poverty line in 2021–2024 than earlier estimates showed.
Sharp spikes in food and energy prices may become more common, prolonging inflation expectations, worsening poverty and threatening economic stability, the International Monetary Fund said in research published on October 6.
The study reviewed three decades of government responses to price surges and introduced a model that accounts for poorer households spending a larger share of their budgets on necessities. It found their inflation measure was 0.8 percentage point higher than the standard index. Under the new model, 23 million more people fell below the extreme-poverty line from 2021 to 2024 than previously calculated.
IMF economist Chiara Maggi, who co-led the research, said cost-of-living crises undermine price stability, reduce living standards and worsen inequality. The study forms Chapter 2 of the fund’s forthcoming World Economic Outlook, due next week.
Short- and medium-term inflation expectations rise significantly during cost-of-living crises and remain above pre-crisis levels even three years after they begin, the IMF said. Five-year expectations increase more modestly at first but can remain elevated, potentially contributing to higher interest rates.
The fund said targeted transfers are the best way to protect vulnerable households while preserving price signals. Price controls and cuts to consumption taxes can cost governments three to six times more than targeted measures, while producer subsidies can cost 22 times as much. Such subsidies may benefit consumers abroad when subsidized goods are exported.
The IMF expects global output to grow about 3% in 2026, in line with its July forecast but below the 3.5% average recorded in 2024 and 2025. That July projection assumed the Middle East war would ease by mid-July. The conflict has since spread to neighboring countries, and the fund said risks remain high.