Inflation and the Russian-Ukrainian war attract the attention of G7 financial leaders

KOENIGSWINTER, Germany (AP) — Finance ministers from major Group of Seven economies grappled on Thursday with mounting inflation concerns and the immediate effects of Russia’s war in Ukraine, the U.S. Treasury Secretary Janet Yellen warning that it all adds up to a “very difficult economy”. situation.”

Yellen warned that the ongoing sanctions against Russia could generate a backlash for the United States and its allies, causing inflation to rise around the world. The risk of high inflation is that it could lead to slower growth and a wider recession – a sign that the events triggered by Russian President Vladimir Putin’s invasion of Ukraine could have repercussions far beyond. beyond the front lines of the fighting.

Yellen noted “not only the supply shocks we have experienced, but with the continuation of the war and the sanctions that continue to be applied, we may face more inflationary risks to the global economy.”

Beyond high inflation, finance ministers meeting in Koenigswinter, Germany, are dealing with a refugee crisis, war-exacerbated food insecurity, climate change and the ramifications of a multi-year pandemic.

German Finance Minister Christian Lindner, host of the meeting, told reporters ahead of the meeting that Ukraine is likely to need “a number of double-digit billions of euros” over the next few months.

Later in the day, Lindner said finance ministers and central bank heads had heard a virtual address from Ukraine’s prime minister and were in discussion with the country’s finance minister, who was participating via video link.

“We are currently collecting the various direct cash aid pledges,” Lindner told reporters.

He said Germany had pledged €1 billion in grants and expected “further progress” at the meeting.

Officials were also discussing other topics, such as soaring consumer prices.

Yellen said nations were “losing some factors” that played a deflationary role, adding: “We could be entering a world where the prices of goods generally fall less rapidly than they have historically.”

Linder, for his part, said: “Clear decisions are needed so that inflation does not become a long-term harmful phenomenon, and so that we manage to overcome it very quickly.”

Food insecurity was also a major topic even before the start of the meeting. The United States, several global development banks and other groups rolled out a multi-billion dollar plan on Wednesday to address the danger facing an increasingly fragile global economy.

Russia’s invasion of Ukraine has led to a sharp rise in food and energy prices that is contributing to slower growth and threatening global stagflation – while inflation and unemployment are high and economic output is low.

Both countries are huge exporters of wheat, barley and sunflower oil, with disrupted food and fertilizer supplies pushing up already high prices and threatening food insecurity in Africa, the Middle East and in parts of Asia.

Yellen said on Wednesday that “the global economic outlook is challenging and uncertain” and that “rising food and energy prices are having stagflationary effects, namely a decline in production and spending and an increase in inflation all over the world”.

The finance ministers also plan to talk about efforts to get China to ease debt pressure on poor countries to which it has lent money.

“The situation of low-income states poses a risk to global food security and the stability of the international financial system,” Lindner said.

“I remind China of its responsibility in this security situation,” he added. “We need more transparency when it comes to global debt issues and of course that is also a topic of this meeting.”

___

Jordans reported from Berlin. AP writer Geir Moulson in Berlin contributed to it.

Christy J. Olson