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Central bankers wary of commodity swings, inflation

Central bankers wary of commodity swings, inflation
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First Published: Mon, May 09 2011. 06 28 PM IST
Updated: Mon, May 09 2011. 06 28 PM IST
Basel: Global central bankers voiced concern on Monday about recent volatility in commodity markets, saying they needed to better understand its impact on inflation at a time when some emerging economies may be overheating.
Jean-Claude Trichet, speaking as chair of talks at a Bank for International Settlements meeting, also said policymakers had not discussed in depth Greece’s fiscal problems beyond agreeing that some advanced economies needed to improve their finances.
His comments on commodities came after oil posted a record weekly loss of more than $16 a barrel last week after making strong gains in 2011 on the back of robust growth in emerging economies.
“We have associated of course potential overheating in emerging market economies with the overall recovery confirmed at a global level,” Trichet told a news conference after the meeting.
“We have this issue of commodity prices and oil and energy prices in particular with a level of volatility that we can see recently ... we consider this is an issue which is of great importance. It has a great impact on CPI inflation all over the world.”
On the topic of oil price swings, Trichet, who heads the European Central Bank, said the governor of Saudi Arabia’s central bank had given assurances that the world’s top oil exporter would keep supplies appropriate.
The Reuters-Jefferies CRB index , a global benchmark for commodities prices, last week staged its biggest weekly drop last week since late 2008, down 9%.
Trichet said governors needed to better understand correlations of oil, energy and other commodity prices as well as the consequences of commodities becoming asset classes of their own -- a topic that is also being discussed by the G20.
Recovery on track
Trichet said that while some bumps were expected in the road ahead, policymakers believed the global economic recovery remained on track, thanks largely to growth in emerging economies.
Rapid recoveries -- especially in emerging economies like China and India -- have bolstered price growth, but a surge in oil and food prices is raising concerns even in Western states where growth remains weak.
“When you are in a state of potential overheating, we have to make sure fiscal and overall elements of macroeconomic policy are right,” Trichet said.
There have been also encouraging signs in the United States economy. Friday’s data showed US companies created jobs at the fastest pace in five years in April, reinforcing views the economic recovery would regain speed this quarter after stumbling in the first three months of 2011.
The ECB become the first major developed economy central bank to raise interest rates last month, while the Federal Reserve’s $600 billion bond buying programme is expected to end in June.
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First Published: Mon, May 09 2011. 06 28 PM IST