By Dragon‘s Rock, world’s policymakers plot how to slay stagflation

　　div classBodysc17zpet90 cdBBJodivpBy Francesco Canepap

　　pKOENIGSWINTER, Germany Reuters – The world‘s top central bankers and finance ministers gathering near Germany’s Dragons Rock on Thursday have their own beast to slay: stagflation.pdivdivdiv classBodysc17zpet90 cdBBJodiv

　　pThe Group of Seven financial leaders are meeting as the war in Ukraine adds fuel to a surge in the cost of raw materials while new pandemicrelated restrictions in China have slowed down global trade, raising the spectre of a sustained period of high inflation and economic stagnation.p

　　p“We will have to discuss what we can do together in our respective areas of responsibility to avoid stagflation scenarios,” German finance minister Christian Lindner told reporters as leaders arrived for the twoday meeting.p

　　pThe palatial hotel in Koenignswinter where the event is hosted overlooks the Drachenfels, or Dragons Rock, where the hero of the medieval Nibelung legend, Siegfried, is supposed to have slain a dragon that lived in a mountain cave.p

　　pEvery bit as lethal and intractable as a mythological monster, stagflation had no easy fix: stimulate the economy and prices will run away even faster, close the money taps and you will choke off economic growth.p

　　pAfter underestimating inflation for most of last year, most central bankers from the United States to Europe and Australia were now singlemindedly focused on curbing prices that have been rising at the fastest pace in decades.p

　　pThe Federal Reserve, the world‘s most influential central bank due to the dollar’s dominance on global financial markets, has pledged to raise interest rates as high as needed even if that could end up costing some people their jobs.p

　　pEven the European Central Bank, which had until recently all but ruled out rate hikes, was now moving towards the first increase in more than a decade – probably the first of several.p

　　pBut finance ministers are worried that the economy would deteriorate further as sanctions against Russia make importing raw materials from oil to wheat more expensive – straining household budgets just as borrowing costs also rise.p

　　p“The economic outlook globally is challenging, and uncertain, and higher food and energy prices are having stagflationary effects, namely, depressing output and spending and raising inflation all around the world,” U.S. Treasury secretary Janet Yellen said in Bonn on Wednesday.p

　　pShe has argued that the United States should remove tariffs of up to 25 on some Chinese imports that are not strategic, such as bicycles, lawn mowers and Tshirts – a move that would make them cheaper for U.S. consumers and offering muchneeded relief.p

　　pOther governments such as Italy‘s and Germany’s have cut the tax on fuel while France has capped the price of natural gas and electricity to soften the economic impact of soaring energy costs.p

　　pYellen had previously avoided mentioning “stagflation” – a term associated with 1970s inflation spikes and sluggish growth – when describing the U.S. economy, which has strong momentum from the COVID19 recovery and strong labour market.p

　　pA generation ago, it took Feds chair Paul Volcker a brutal series of rate hikes and a recession to break the back of inflation, ushering an era of stable prices and steadier economic growth.p

　　pLegendary hero Siegfried was also said to have gained near immortality after bathing in the dragons blood. p

　　pBut an economic bloodbath is what todays policymakers are still hoping to avoid. p

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　　pp Additional reporting by Paul Carrel and David Lawder Editing by Tomasz Janowskip

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