G-8 Officials Focus on Commodities - Truth About Trade and Technology

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Monday, 16 June 2008 03:41

The Wall Street Journal
By KAREN LANE
Original Publish Date: June 16, 2008

Osaka, Japan -- Finance ministers from the Group of Eight leading nations who gathered here over the weekend focused on the high cost of commodities, notably oil and food, which they warned could undermine economic growth and stir up inflation.

They refrained from commenting on foreign-exchange rates in their final joint statement. However, the subject was a hot topic in meetings on the sidelines, where U.S. Treasury Secretary Henry Paulson repeated his recent support for a stronger dollar.

Ministers reiterated their commitment to strengthening the financial system to prevent a replay of the financial crisis that nearly a year ago saw fallout from problems in the U.S. subprime-mortgage market ripple throughout financial markets and economies.

"Elevated commodity prices, especially of oil and food, pose a serious challenge to stable growth world-wide, have serious implications for the most vulnerable, and may increase global inflationary pressure," the ministers said in a joint statement.

"These conditions make our policy choices more complicated," they said. They vowed to take "appropriate actions" to secure stability and growth.

Central banks have been watching inflation rates rise with some concern, and are fearful that costly commodities will translate into broader inflationary pressures that could get out of control unless reined in by tighter monetary policy.

At the same time, though, economic growth has slowed because of fading global demand and the aftermath of the subprime crisis. In a number of countries, citizens have taken to the streets to protest against higher food and fuel prices.

The G-8 -- which groups the U.S., United Kingdom, Japan, France, Germany, Italy, Canada and Russia -- said high oil prices were fundamentally a reflection of rising world demand at a time of supply constraints.

However, a call for more information on how much money is flowing into the oil market indicated that there are serious concerns among some G-8 members, such as France, Germany and Italy, that speculators have driven recent record-high oil prices.

Ministers urged producers to ensure more oil makes it onto the market. Even as they look to make it easier to secure cost-efficient fuel, the ministers said they were committed to leading the charge on climate change and would strengthen efforts to aid developing countries in that regard, including through climate investment funds.

The group appeared to be in greater agreement over high food prices. The solution lies in ensuring the international community responds with an integrated approach that addresses the immediate effects of the crisis and the underlying causes of food insecurity, the statement said.