Capital Economics: Global Inflation to Decline in 2027
According to a report published by Capital Economics, global inflation, which will rise in the short term due to energy prices, is set to decline in 2027.
Capital Economics reported that global inflation, which it forecasts will continue to rise in the short term due to the impact of energy prices, will begin to retreat in 2027. The decline in core inflation is expected to be seen starting from the middle of next year.
Global Inflation and Risks
Capital Economics' October 15, 2026 Global Inflation Watch report stated that the primary risk capable of altering this expectation is a much more severe shock that could occur in the Middle East and energy markets.
Expected Moves by Central Banks
The institution does not expect even energy prices remaining above forecasts to trigger wage and price increases that would make domestic inflation persistent.
Based on this assessment, it was stated that central banks are unlikely to raise interest rates to the extent priced in by the markets.
Energy as the Source of the Inflation Increase
The report noted that global inflation, which was 2.6 percent in January, rose to 3.6 percent in August, and that almost all of the increase stemmed from energy.
It was conveyed that non-energy inflation in advanced economies remained slightly below its level prior to the Iran war as of August.
Oil and Natural Gas Price Forecasts
According to Capital Economics, energy-driven price increases will continue to boost headline inflation in the coming months, and the barrel price of Brent crude is forecasted to hover around an average of $100 until early 2027.
While fuel inflation is not expected to rise in Japan and certain other parts of Asia due to caps on gasoline prices, high natural gas prices are projected to increase residential energy costs in most advanced economies.
2027 Supply Normalization Scenario
The institution's 2027 forecasts are based on the assumption that energy supplies from the Middle East will return to normal in the first half of next year.
If this scenario materializes, the barrel price of Brent crude is expected to drop to $70 by the end of 2027, and natural gas prices in the European Union are expected to fall to 40 Euros per megawatt-hour.
Impact of Food Prices on Inflation
It is estimated that the indirect effects of the rise in energy prices will become particularly prominent in food next year, and food inflation in most advanced economies could reach its highest levels in recent years.
It is stated that this increase in food prices will merely slow down the pace of the decline in inflation rather than halting it.