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G-8 says oil, food prices are a threat
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14:46, July 04, 2008

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Finance ministers from the Group of Eight nations said surging food and fuel prices have replaced the credit squeeze as the biggest threat to the world economy.

"The predominant concern is the inflationary effect that oil in particular and also food prices are having," UK Chancellor of the Exchequer Alistair Darling said on Saturday after G-8 officials ended talks in Osaka. Deputy German Finance Minister Thomas Mirow said oil's rise to a record means "an enormous withdrawal of purchasing power."

Inflation is accelerating after the price of oil reached an unprecedented 139.12 U.S. dollars a barrel on June 6 and food costs from rice to soybeans set records this year. Central banks are already shifting toward tighter monetary policy even as worldwide economic growth cools.

"The G-8 is turning up the volume in terms of its inflation concern," said Claudio Piron, a currency strategist at JPMorgan Chase & Co in Singapore.

In a statement, the ministers said the global economy faces "headwinds" and that risks to growth persist, with higher commodity prices posing a "serious challenge." The ministers stuck to their practice of not making a joint comment on currencies when central bankers are absent from the talks. Even so, United States Treasury Secretary Henry Paulson and French Finance Minister Christine Lagarde spoke in favor of a strong US dollar.

"A strong dollar is in our nation's interest," Paulson said. Lagarde said she was "happy to hear" that view. Japanese Finance Minister Fukushiro Nukaga said intervention in the currency market wasn't discussed by the G-8 ministers.

The US dollar had its biggest weekly gain against the euro since 2005 on bets the G-8 governments would signal they favor further increases. The currency has dropped 30 percent on a trade-weighed basis since 2002.

The ministers cited further declines in US house prices and stresses in financial markets as other growth risks, while noting conditions improved since they identified the credit squeeze as the major worry at their last meeting in April.

Fragile stability

Mario Draghi, head of the Financial Stability Forum, said there is "fragile stability" in markets, and inflation has replaced tighter credit as the world economy's biggest obstacle, Bloomberg News reported.

The doubling in the price of oil in the past year was described as a "strong" concern by the officials, who urged producing nations to increase output and enhance their refinery capacity. Markets should promote transparency and consumers must use energy more efficiently, they said. Emerging economies had to stop food and fuel subsidies.

The International Monetary Fund predicts the fastest inflation in advanced economies since 1995 this year even as expansion is the slowest in seven years.

Source: CRIENGLISH.com



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