New price shocks hit lower-income households hardest, while broad subsidies can cost governments far more than targeted support, an IMF study says.
Sharp increases in food and energy prices may become more frequent, International Monetary Fund officials warn. The fund’s research reviews three decades of government responses and introduces an economic model that accounts for the heavier burden of inflation on lower-income households, which spend a larger share of their budgets on daily necessities.
Chiara Maggi, the IMF economist who led the research, said cost-of-living crises undermine price stability, reduce living standards and worsen inequality. The study appears as Chapter 2 of the fund’s forthcoming World Economic Outlook.
The report also assesses price-control policies. As summarized by HotNews, caps on prices and cuts to consumption taxes can cost governments three to six times as much as targeted measures, while producer subsidies can cost up to 22 times as much. The IMF warns that such subsidies may lower the cost of goods that are subsequently exported, leaving domestic taxpayers to subsidize consumers abroad.
The article cites the IMF’s forecast for global growth of about 3 percent in 2026. That matches the fund’s July projection but is below the 3.5 percent average recorded in 2024 and 2025. The July forecast assumed the war involving Iran would end that month; the report says attacks have since intensified and the conflict has spread to neighboring countries.
Shantayanan Devarajan, a Georgetown University professor and former World Bank economist, pointed to the combined pressure of higher oil prices, heavy debt, more expensive borrowing and climate impacts. He urged countries to pursue reforms and prepare targeted assistance before a crisis begins, when introducing such measures becomes harder.