Global Economic Update, the Inflation and Interest Rate Outlook for Late 2026
Inflation is rising again in the major economies, and most of the large central banks have gone back to raising interest rates. Higher energy prices after the conflict in the Middle East are the main cause in the US and Europe.
All prices in this piece are as at the close of ASX trading on 21 October 2026. The US 10-year Treasury yield is taken at the New York close on 21 October 2026.
The global inflation outlook
The International Monetary Fund (IMF) expects global inflation of 4.7% in 2026, up from 4.1% in 2025, easing back to 4.1% in 2027. Its October World Economic Outlook puts the rise down mainly to energy and food prices. The forecast assumes oil prices ease in 2027, and the IMF warns a prolonged stalemate in the Middle East could keep energy and food prices high. Its core forecast is 3.9% in 2026 and 3.7% in 2027, so the underlying rate comes down more slowly.
Underlying inflation is below headline in all three economies with both figures in TABLE 01. The gap is widest in the US and the euro area, where energy prices were up 20.4% and 18.9% on a year earlier. In Australia the gap is narrower, and the trimmed mean of 3.6% is above the Reserve Bank of Australia's (RBA) 2 to 3% target. So the pressure here is broader than fuel.
What the central banks have done
Four of the five central banks in TABLE 02 raised rates in September.
The RBA's rise was its fourth this year and the decision was unanimous.
The US 10-year Treasury yield chart
FIG. 01 shows how the bond market has moved. The US 10-year yield closed at 5.15% on 21 October, about 0.6 of a percentage point above its 200-day average, and that average is still rising. ADX reads 33. J. Welles Wilder set out ADX in New Concepts in Technical Trading Systems (1978) as a measure of trend strength, and traders conventionally read above 25 as a trending market.
The short-term picture has cooled. The yield is down from its highest close of 5.31% on 5 October and sits just below its 10-day average. A close back below the 50-day average, now 4.97%, would be the first since June. In plain terms, the long trend still points to higher borrowing costs, and the past two weeks are a pause within it.
The next decisions
The Federal Reserve meets on 27 and 28 October. The median of its policymakers' September projections puts the end-2026 rate at 4.1%. Against the current midpoint of 3.875%, that points to one more 25 basis point rise this year. Market pricing on 20 October favoured a hold in October and a rise by December.
The European Central Bank decides on 29 October. The Bank of England expects UK inflation of around 3.75% in the December quarter, which keeps a rise on the table on 5 November. Australia's September inflation figure comes out on 28 October, six days before the RBA decision on 3 November. The RBA said it would do what it considers necessary, "including increasing the cash rate target further if needed".
Samso Concluding Comments
In the US and Europe the gap between headline and underlying inflation is what central banks will weigh. In Australia the trimmed mean is already above target, and the RBA has pointed to capacity pressures as well as fuel. If energy prices ease, headline inflation should fall quickly and the case for more rises weakens. If fuel feeds into wages and other prices, central banks are more likely to keep raising.
For an ASX investor, the dates to watch are 28 October and 3 November. The RBA has noted that housing prices have fallen in most capital cities. Another rise would add to that pressure.
References and sources
Each source is listed in the order it is used. FIG. 01 is an original Samso illustration of sourced data, drawn from the daily closes of the Cboe 10-year Treasury yield index on Yahoo Finance. Tables 01 and 02 are Samso tables of figures from the releases named in them.
[R15] US 10-year Treasury yield, Cboe index ^TNX daily closes, Yahoo Finance, to 21 October 2026. Measures are Samso's own calculations from these closes.
Cover photo: The Eccles Building, Federal Reserve Board, Washington DC, 29 March 2011. Federal Reserve, public domain, via Wikimedia Commons (https://commons.wikimedia.org/wiki/File:Eccles_Building_(26088200676).jpg).
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