Russia’s invasion of Ukraine is causing profound changes in the world economy that will result in higher inflation, according to BlackRock Inc. CEO Larry Fink.

Larry Fink

Russia’s invasion of Ukraine is causing profound changes in the world economy that will translate into higher inflation, according to BlackRock Inc. CEO Larry Fink.

The war is accelerating a move away from globalization and also causing energy and food prices to rise, Fink said in a call with several thousand global clients on Tuesday. These factors, coupled with what he called “poor long-term planning by global governments,” will mean higher costs for consumers.

“Inflation will be higher than we expected,” Fink said. “Central banks may not have all the tools in their monetary policy resource pool to address some of these structural challenges.”

President Vladimir Putin’s war in the Ukraine has unleashed an astonishing shift in global finance and business in just two weeks. Russia’s central bank has been effectively banished from the dollar system, large corporations are abandoning or closing their local outposts, and a series of sanctions have been imposed on Russian companies and suppliers.

Fink was speaking on the same day that some of America’s biggest brands, such as McDonald’s Corp., Coca-Cola Co. and Starbucks Corp., announced they would suspend operations in Russia, and the United States and the United Kingdom said they would stop import Russian oil.

“Over the last week, the world has changed profoundly because of the Russian invasion of Ukraine,” Fink, 69, said, according to remarks prepared for the call that were reviewed by Bloomberg. “Geopolitics in the short term will be more important than cheaper goods.”

“This is a demonstration of the power of capital markets: how markets can deploy capital to those who work constructively within the system and how quickly they can deny it to those who operate outside of it,” Fink said.

Short-term increase

The world’s largest asset manager never had an office or staff located in Russia, Fink said. “We have also never believed in Russia as an investment destination in the vast majority of our portfolios.” However, BlackRock did invest on behalf of clients in some areas, for example emerging market indices or actively managed natural resource strategies.

Among the changes Fink predicted: Companies are likely to spend more in the short term to increase their capabilities locally as they reassess supply chains around the world. Germany is likely to spend more on defense and liquefied natural gas plants as Europe seeks to reduce its dependence on Russian energy imports.

“Creating redundancies will increase costs,” Fink said. “My view is that we’ll see this in the next earnings cycle and that’s when we’ll really start to see and better understand the impact.”

Fink said the changes will lead to better policies and long-term planning, “and hopefully this will create a better and safer world for years to come.” But the short-term outlook is “bumpy,” he said.

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