The message seems to have been lost in all the noise.

Global stock markets are roaring ahead, smashing through record levels on a daily basis, convinced the US Federal Reserve will cut interest rates twice, and possibly three times this year.

Bolstered by better than expected US consumer price numbers last week, the developed world now seems convinced the inflation battle is all but won.

But not the International Monetary Fund.

Its latest report, released overnight, points to a difficult task ahead in the final stretch to defeat the inflation beast.

And that leads to an uncomfortable conclusion.

“The risk of elevated inflation has raised the prospects of higher for longer interest rates,” the report says.

That, in turn, increases risks globally of a major financial fallout. 

The biggest risk is that higher American interest rates “disrupt capital flows and impede planned monetary policy easing, which could adversely impact growth”.

Even worse, “persistently high interest rates could raise borrowing costs further and affect financial stability if fiscal improvements do not offset higher real rates amid lower potential growth”.

The culprit behind this warning is the persistent growth in the price of services, particularly across the developed world. 

Soaring goods prices, and particularly fuel, may have kicked off the inflation spike. But the scourge since has moved on.

In Australia, that has manifest itself in everything from haircuts, to rent, insurance and health care with services prices up 4.8 per cent in the most recent data.

And the difficulty, from the Reserve Bank of Australia’s viewpoint, is that jacking up rates won’t directly help solve those underlying price pressures.

You can’t opt to reduce your rent if you want to maintain a roof over your head, particularly in a market that has a less than 1 per cent vacancy rate.

USA leads the way

Much of the IMF’s wet blanket on financial market euphoria can be sheeted home to the shifting political situation, particularly in America.

Donald Trump has promised to cut taxes and erect of wall of trade barriers around the world’s biggest economy should he be elected president later this year.

“The potential for significant swings in economic policy as a result of elections this year, with negative spillovers to the rest of the world, has increased the uncertainty around the baseline,” the report notes.

“These potential shifts entail fiscal profligacy risks that will worsen debt dynamics, adversely affecting long-term yields and ratcheting up protectionism.”