With Dragon’s Rock, the world’s policymakers plot how to kill stagflation

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Koenigswinter – They have their own beast to kill the world’s top central bankers and finance ministers who gathered near Dragons Rock in Germany on Thursday: stagnation.

The Group of Seven financial leaders are meeting because Ukraine’s war has added fuel to rising raw material prices, while new epidemic-related restrictions in China have slowed world trade, boosted inflation and boosted economic sustainability. Stagnation

“We need to discuss what we can do together in our respective responsibilities to avoid stagflation,” German Finance Minister Christian Lindner told reporters during a two-day meeting.

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Drachenfels or Dragon’s Rock can be seen at Koenignswinter’s palace-like hotel where the ceremony is being held, where the hero of the medieval Nibelung legend, Siegfried, is believed to have killed a dragon living in a cave in the mountains.

Deadly and complex like a mythical monster, there was no easy solution to stagnation: stimulate the economy and prices will go up faster, stop the money tap and you will stop economic growth.

After devaluing inflation for most of last year, most central bankers, from the United States to Europe and Australia, are now focused solely on controlling prices, which have been growing rapidly for decades.

The Federal Reserve, the world’s most influential central bank due to the dollar’s dominance in global financial markets, has promised to raise interest rates as high as necessary even if it could cost some people jobs.

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Even the European Central Bank, which recently scrapped rate hikes, is now heading for the first increase in more than a decade – probably the first of several.

But finance ministers are concerned that sanctions against Russia will make importing raw materials from oil to wheat more expensive, leading to further deterioration of the economy – increasing borrowing costs and putting pressure on household budgets.

“The global economic outlook is challenging, and uncertain, and high food and fuel prices have stabilizing effects, such as depressing output and rising costs and inflation around the world,” US Treasury Secretary Janet Yellen said Wednesday.

He argued that the U.S. should lift tariffs of up to 25% on some Chinese imports that are not strategic, such as bicycles, lawn mowers and T-shirts – a move that would make it cheaper for U.S. consumers and offer much-needed. Relief

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Other governments, such as Italy and Germany, have cut taxes on energy, while France has limited natural gas and electricity prices to soften the economic impact of rising fuel costs.

Yellen previously avoided mentioning “stagflation” – a term associated with the 1970s inflation spike and slower growth – when describing the US economy, which has a strong recovery from the Covid-19 recovery and a strong labor market.

A generation ago, it took Fed Chair Paul Volker a brutal series of price hikes and a recession to break behind inflation, ushering in an era of stable prices and stable economic growth.

Legendary hero Siegfried is also said to have gained immortality after bathing in dragon blood.

But an economic bloodbath that today’s policymakers are still hoping to avoid.

(Additional Reporting by Paul Carell and David Lauder Edited by Thomas Janowski)