Global inflation pressures the G7 as bond yields continue to rise

Paris —
The G7 countries face a more complex economic reality, with increasing conviction among finance ministers and central bank governors that the global price shock may last longer than expected.

The group’s meetings are held in Paris amid a continued rise in long-term government bond yields, reflecting market expectations that inflation will remain high and that central banks may have to keep interest rates elevated or even raise them again.

The war in Iran caused a new shock in energy markets, leading to higher oil and fuel prices, increasing pressures on companies, consumers, and governments, at a time when major economies hoped for a faster return to price stability.

Economic officials warn that continued high energy prices could lead to broader secondary effects, such as rising wages and transportation and production costs, which may push central banks to tighten monetary policy even if growth slows.

These concerns come as the yields on 30-year US Treasury bonds approach their highest levels since 2007, increasing borrowing costs for governments, companies, and households.

These developments also place additional pressures on public budgets, especially in countries already suffering from high deficits, because rising yields mean higher debt servicing costs.

In Japan, stronger-than-expected economic growth has boosted expectations of a possible interest rate hike again, while Europe faces similar pressures with increasing investor bets on new monetary tightening.

In Canada, markets are watching the inflation path after gasoline prices rose, as the Bank of Canada tries to distinguish between a temporary energy shock and broader inflation that may require a change in the interest rate.

G7 officials acknowledge that the global economy has shown some resilience, but they warn that downside risks remain significant, especially with the ongoing Middle East crisis, weak Chinese demand, widening US deficits, and rising global financing costs.

The Paris meetings have thus shifted from traditional discussions about growth and economic imbalances to a tough test of how major economies handle a new inflation wave that could threaten recovery and increase political and social pressures.