The world’s “battle against inflation is almost won,” an official with the International Monetary Fund said.

Pierre-Olivier Gourinchas, the economic counselor and director of research at the IMF, said the organization is projecting that worldwide inflation will fall to 3.5% by the end of next year.

World inflation is now 5.8% after peaking at 9.4%. In the U.S., it’s already under 2.5% inflation.

“The decline in inflation without a global recession is a major achievement,” Gourinchas said at a news conference for the IMF’s World Economic Outlook.

James Knightley, the chief international economist in New York for ING, said he mostly agrees with the IMF’s belief that the inflation battle has been won. While not all countries are at their inflation targets, the data show a clear, consistent message: The world is on the path to defeating inflation.

“I think there’s a significant amount of evidence to say that we can perhaps worry much less about inflation than we have been,” Knightley said.

U.S. inflation — already lower than the global average — would look even better if it were calculated the same way as in Europe and elsewhere, Knightley said.

Housing and cars account for 50% of the core inflation basket here, as seen in the consumer price index from the Labor Department.

In Europe, housing and cars account for 15% of the inflation calculation.

“It’s pretty much apples and pears,” Knightley said.

“If we calculated it the way the Europeans do, inflation would be actually below the target [2%] already,” he said. “That would give the [Federal Reserve] greater scope to cut rates.”

The IMF said the global economy remained unusually resilient while monetary policymakers took steps to cool inflation.

In the U.S., the Fed raised its benchmark interest rate 11 times between 2022 and 2023 as a lever to tame inflation.

The Fed finally reversed course last month, cutting its benchmark interest rate by half a percentage point as inflation continued to cool and worries over the labor market increased.

There are cracks emerging in America’s generally strong jobs market. The number of “discouraged workers” jumped 21% in a month, according to the Labor Department. These are people who believe there are simply no jobs available for them.

The number of long-term unemployed Americans is up 25% compared with last year — and it has become harder to find a job.

The job market remains very strong, labor economist Aaron Sojourner has previously said.

The share of working-age Americans who are employed is high, and workers are enjoying record-high job security. The layoff rate is a mere 1%.

Until May, the unemployment rate was below 4% for two straight years. The unemployment rate remains low, and wage growth is outpacing inflation. Typical wage growth is 4.7%, according to the Atlanta Fed’s tracker.

But Sojourner said the hiring rate has been on a steady decline, mirroring rising interest rates. With the exception of the start of the pandemic, the hiring rate hasn’t been as low as it is now for over a decade.

Businesses, burned from their rehiring struggles during the pandemic, have held on to their workers but haven’t added as many new workers. When the Fed raises the federal funds rate, it makes borrowing more expensive for businesses. The Fed rate cuts aim to guard against the worsening of the labor market.

Businesses could see profit opportunities ahead, secure financing to put them into action, and hire more staff, Sojourner said.

Knightley mentioned the softening jobs market as one of his top concerns for the U.S. economy.

The IMF is forecasting the U.S. economy to grow 2.2% next year after back-to-back years of economic growth close to 3%. Knightley is a bit more cautious in his outlook for the U.S. economy, expecting closer to 1.5% to 1.8% growth next year.

That’s still “very respectable” economic growth, he said. But he is concerned that Americans, already under stress from inflation, might grow more worried about the jobs market and pull back some of their spending that’s kept the economy humming along.

The resilience of the U.S. economy since the pandemic has been “astonishing,” Knightley said. He called America “the real standout story” compared with other parts of the world, which have struggled more over the past few years.

“Pretty much every economist was calling for a recession at some point in the last two years, and it just didn’t happen,” he said. “That willingness or the desire of the U.S. consumer to just keep going and going and going. It’s been astonishing, and it’s just kept that growth story so robust.”

The IMF said there was a “unique combination of shocks” that spurred global inflation: broad supply disruptions coupled with strong demand pressures in the wake of the pandemic, followed by sharp spikes in commodity prices caused by the war in Ukraine.

Inflation is a big topic for the U.S. election, but it’s not a purely political issue. Knightley said prices rose amid heavy consumer demand and heavily constrained supply during the pandemic.

“We were basically locked down. We couldn’t go out and about, and it was a slow process for reopening … And of course, the things that we actually needed and wanted to occupy our time were physical goods, because we couldn’t do experiences,” he said.

No one, including leaders in Washington, knew how the pandemic would evolve. Government stimulus, which came under both the Trump and Biden administrations, “amplified [inflation] significantly,” Knightley said.

“We didn’t know what was going to happen, and as a result, we were just trying to keep the economy afloat, throwing money at the problem,” he said. With hindsight, perhaps we didn’t need as much government stimulus, Knightley added.

The stimulus gave Americans more to spend on goods, helping drive demand and ultimately prices. When the economy reopened, companies needed to hire a lot of people quickly. That created wage pressures, which also drove prices higher as companies tried to recoup some of their higher costs.

But Knightley said both the global and U.S. economies are returning to normal. The Fed is expected to keep cutting interest rates, and he’s pretty confident in the ability to reach the target of 2% inflation with a soft landing for the economy.

“After all the economic disruptions, I think it’s a huge, remarkable, fantastic achievement,” he said.

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