Taking their cue from tough comments from central bankers on inflation over the past two weeks, the G8 communiqué said: Elevated commodity prices, especially of oil and food, pose a serious challenge to stable growth worldwide, have serious implications for the most vulnerable, and may increase global inflationary pressure.”
The rise in the inflation threat makes our policy choices more complicated”, ministers added.
In a moderation of the International Monetary Fund’s gloomy global outlook, Dominique Strauss-Kahn, managing director, said that the US, Europe and even Japan” had performed better than expected in the first quarter. We have been surprised by the strength of growth,” he said, adding that this did not change the fundamental outlook but pushed the curve along. Even if the slowdown is not going to be very deep, it is going to be protracted.”
After a sharp rise in US inflation on Friday, Mr Paulson said the high oil price brings the risk that the slowdown in our economy is going to be prolonged”. He said house price falls will very likely spill over into next year”. Separately, Saudi Arabia is considering boosting oil production to its highest level in more than 25 years to bring down record prices and ease political pressure from the US and other developed countries.
Alistair Darling, the UK chancellor, said in Osaka that the predominant concern [in the G8] is the inflationary effect that rising oil and food prices were having”. He is likely to receive a letter from the Bank of England on Tuesday, explaining why UK inflation has risen more than one percentage point above its 2 per cent target.
Although Joaquín Almunia, the European Union economic commissioner, said the US was at risk of 1970s-style stagflation, Mr Paulson insisted that the US was in a better position than most other rich countries.
We should begin by acknowledging that we are going through a tough period right now, but we have good fundamentals,” Mr Paulson said, adding that these compared favourably with other economies.
Using this to talk up the dollar, he added: I believe these fundamentals will be reflected in the currency.”
Alongside comments from Ben Bernanke, the Federal Reserve chairman, the US position increasingly appears to be seeking to put a floor beneath the dollar’s fall to protect the US economy from increased inflationary pressures from rising import prices.
Other finance ministers disagreed on whether there had been substantive talks on currencies at the meeting, but it was clear that no discussions regarding intervention took place.