Global Disinflation: Is the Last Mile the Hardest?
- ▸Global inflation fell from 8.7% in 2022 to an estimated 4.3% in 2025 — but the final stretch to 2% targets has stalled, driven by persistent services inflation and domestic wage growth.
- ▸Services inflation is structurally harder to reduce than goods inflation because it is driven by local labour costs rather than global supply chains that can recover and normalise.
- ▸The IMF warns that tariff escalation risks reigniting goods price pressures just as the disinflation path appeared to be settling, creating a new complication for central banks.
Two-Speed Inflation: Goods vs Services
The initial price surge was led by goods: energy, food, and manufactured products whose global supply had been disrupted. When supply chains recovered and energy prices moderated, goods inflation fell quickly — in some categories, prices declined on a year-on-year basis.
Services inflation operates differently. Services — healthcare, education, restaurants, transportation, housing — are produced locally, priced locally, and driven primarily by domestic labour costs. When wages rise, service businesses face higher input costs and pass them to consumers. This is not a supply-chain problem that resolves when ships move again. It is a wage-price dynamic that responds only slowly to higher interest rates.
Why Wages Are at the Centre
In most advanced economies, wage growth following the pandemic was exceptionally strong. Workers who had seen real purchasing power eroded by inflation secured above-inflation pay rises. In the United States, nominal wage growth ran above 4% through 2023 and into 2024. Similar patterns emerged across the United Kingdom and several eurozone economies.
For service-sector businesses on thin margins, wage growth of 4 to 5% translates almost directly into equivalent price increases. Breaking this dynamic requires labour market cooling — which means tolerating higher unemployment. That is an outcome no government or central bank pursues willingly, which is precisely why the last mile takes longer.
What the IMF's Data Shows
The IMF's April 2025 World Economic Outlook projects global inflation at 4.3% for 2025, down from the 8.7% peak in 2022. In advanced economies, the IMF forecasts headline inflation averaging 2.1% — close to target in aggregate but with notable variation. The United States is projected at 2.8%, the Euro Area at 2.1%, the United Kingdom at 2.7%, and Japan at 2.3%. Services inflation in several economies remains above 3%.
Emerging markets face a more difficult path. Inflation in emerging market and developing economies is projected to average 5.8% in 2025, with Sub-Saharan Africa running significantly higher. Currency depreciation, domestic food price sensitivity, and weaker central bank credibility make the disinflation path considerably harder outside the advanced economy group.
For global emerging markets tracking this dynamic: economies like India that achieved faster disinflation than peers — India's CPI fell from 6.7% in 2022 to a projected 4.2% in 2025 — benefited from a relatively stable currency, good agricultural production, and a central bank that moved early on rate policy. However, global commodity prices and any currency weakness could quickly reverse this progress. Emerging market central banks watching the last-mile problem in advanced economies should note that the services inflation mechanism operates in their own economies too — rapidly rising urban service sector wages can sustain above-target inflation long after supply-side shocks have faded.
Primary Sources
Cite This Article
Khagan Rao. (2026, June 24). Global Disinflation: Is the Last Mile the Hardest?. EconoLens. https://econolens.co.in/news/global-disinflation-last-mile-hardest
Khagan Rao is an economist and analyst specialising in global monetary policy, fiscal frameworks, and international trade. He tracks publications from the IMF, World Bank, BIS, and RBI to deliver accessible, data-driven analysis for a global audience.