IMF warns energy shock is keeping inflation elevated as diesel, gasoline prices surge

WASHINGTON (XOL Africa) — The global energy shock is continuing to fuel inflation and put pressure on economies, with diesel, gasoline and jet fuel prices now between 60% and 97% above their pre-conflict levels, the International Monetary Fund said.

Julie Kozack, director of the IMF’s Communications Department, said Thursday that elevated oil and gas prices, high refined-product costs and rising energy demand were keeping inflation pressures persistent across many economies.

“The energy shock, which is part of what’s feeding headline inflation, is not over yet,” Kozack told reporters at an IMF press briefing.

She said the impact was being felt not only through crude oil and natural gas supplies but also through constraints on refining capacity, which have pushed up the prices consumers and businesses actually pay for fuels.

“Diesel, gasoline and jet fuel prices are up between 60 and 97 percent relative to their pre-conflict levels,” Kozack said, attributing the increase in part to limited refining capacity.

Alternative refining hubs are also operating near full capacity, creating additional constraints in the supply of refined products, she said.

“Households and firms consume refined products, not crude oil,” Kozack said, emphasizing the importance of disruptions to refining capacity for the wider economy.

The IMF’s assessment comes as energy markets continue to face disruption linked to the conflict and restrictions affecting energy flows through the Strait of Hormuz. Kozack said the loss of refining capacity in the Gulf had compounded the impact of disruptions to crude and natural gas supplies.

The energy shock is also complicating the global inflation outlook. Kozack said inflation has remained persistent in many countries, with the disinflation process having stalled in some economies.

The IMF will publish updated inflation forecasts in its October World Economic Outlook during the week of its Annual Meetings in Bangkok, Thailand.

Kozack declined to provide details of the forthcoming projections, saying the Fund did not want to “front-run” the report.

Low-income economies face greater pressure

The IMF said the effects of the energy shock are particularly concerning for low-income and fragile economies, especially countries that entered the crisis with limited fiscal and policy buffers.

Kozack said some countries are simultaneously being hit by higher energy costs while receiving little benefit from the investment boom associated with artificial intelligence.

“There are a group of countries that are not benefiting, let’s say, from the AI investment boom necessarily, but they are also very much affected by the energy shock and they have limited policy buffers,” she said.

“These are the countries that we’re most concerned about still,” she added.

The IMF said some of those countries already have Fund-supported programs, while the institution is working with governments and international partners to provide additional support where necessary.

In some cases, programs have been expanded or their implementation schedules adjusted, Kozack said.

The IMF expects the issue to feature prominently at its Annual Meetings in Bangkok, which are scheduled for Oct. 12-18.

Global economy remains resilient

Despite the prolonged energy shock, Kozack said the global economy has continued to demonstrate resilience.

She described two opposing forces: the negative effect of higher energy costs and the positive economic impetus from investment related to artificial intelligence.

“At the aggregate level, the global economy is kind of holding up,” she said.

But she warned that the resilience at the global level masks significant differences between countries and economic groups.

“The global economy is kind of holding up, but beneath the surface, we still are very concerned about the divergences,” Kozack said.

Those divergences are also visible in global financial markets. The IMF said bond yields have risen in both advanced and some emerging economies in recent months.

Kozack attributed increases in short-term yields partly to higher energy prices and changing expectations for monetary policy, while longer-term yields have also been influenced by concerns over high debt levels and rising term premiums.

Despite those pressures, she said global bond markets continue to function in an orderly manner.

IMF urges targeted support for vulnerable households

The Fund also warned governments against responding to higher energy prices with broad and costly fiscal measures.

For small and developing economies, particularly Caribbean countries with limited fiscal buffers, Kozack said governments should prioritize targeted and temporary support for vulnerable households.

“It’s important that fiscal policy is really prioritized and targeted,” she said.

She said governments should focus on protecting the most vulnerable while avoiding broad-based measures that can impose significant fiscal costs and reduce incentives for higher-income households to conserve energy.

The IMF also urged countries to rebuild fiscal buffers that have been depleted by years of economic shocks.

“Fiscal buffers do need to be rebuilt,” Kozack said, adding that the Fund is working with members to strengthen fiscal frameworks, improve revenue mobilization and make government spending more efficient.

The IMF’s warnings come as governments and central banks continue to navigate the competing pressures of elevated energy prices, persistent inflation and slower economic growth, while seeking to protect vulnerable populations without undermining fiscal stability.