Tokyo: Runaway oil prices are high on the minds of finance ministers from the Group of Eight industrialized nations (G-8) meeting this week in Japan, who are seeking to calm global jitters about a series of looming economic problems.
Soaring crude oil costs and rising food prices have created inflationary risks not seen in years.
No laughing matter: (top left) Indian ambassador to Japan Hemant Krishan Singh poses with some G-8 delegates in Aomori on 8 June. G-8, China, South Korea and India account for 65% of global energy use.
Add to that the credit crunch still dragging on global growth and rattling international markets as well as persistent worries about a US economic slump, and finance ministers have a long list of worries to address when they gather on Friday for the two-day meeting in Osaka, hosted by a nation that imports nearly all its oil.
“I want serious discussion of global economic development, environmental changes, African development, crude oil problems and rising food and commodities prices,” Japanese finance minister Fukushiro Nukaga told reporters. “I’m hoping for serious debates about what the G-8 will do, both individually and collectively, to solve those problems,” he said about the meeting that will bring together finance ministers from the US, Japan, Russia, Italy, France, Germany, the UK, and Canada.
Concerns that the US economy, the world’s largest, is sliding into a recession have worsened after figures last week showed the jobless rate shot up from 5% to 5.5% in May, the biggest jump in two decades.
US Federal Reserve chairman Ben Bernanke — who will not be at the G-8 meeting — has tried to allay such fears by saying that the risk of a “substantial downturn” had waned in recent weeks. The Fed’s interest rate cuts, the government’s $168 billion (Rs7.19 trillion) stimulus package and progress in fixing financial and credit market problems are helping prop up the American economy, and solid US exports for the rest of the year should also help the economy, he said.
But Bernanke also said recent energy price gains have raised inflation risks and that the Fed “will strongly resist” any erosion in long-term expectations for prices — raising speculation that the Fed is prepared to raise rates.
Oil spiked to nearly $140 a barrel last week, and several Asian countries, including India, Indonesia and Malaysia, have cut fuel subsidies, raising retail prices for millions of consumers. Meanwhile, the world is grappling with an emerging food crisis as prices of corn, wheat, rice, soya bean and other agriculture products have been rising. The gains are due to a mixture of factors including high oil prices, changing diets, urbanization, expanding populations, extreme weather, growth in biofuel production and speculation.
The food price hikes have set off riots and protests from Africa to Asia and raised fears about a global food crisis that could cause millions more people to suffer malnutrition.
Tatsushi Shikano, senior economist at Mitsubishi UFJ Securities Co. in Tokyo, acknowledged that the G-8 finance ministers have numerous serious problems to tackle but said they can’t overreact in regulating financial markets because that could have just the opposite effect — making for a jumpy market. “They must try to solve the problem in moderation and take a mild, calm approach,” he said.
Related to the fears about oil prices are concerns about global warming and other ecological initiatives to boost nations’ fuel efficiency and reduce greenhouse gas emissions.
Climate change will be a key topic at the summit to be held on 7-9 July in Hokkaido, the northern island of Japan.
The ministers are also likely to discus the weakness of the dollar, although this week the dollar modestly recovered, rising above 107 yen to a dollar. The weak dollar has contributed in oil’s surge as some traders invest in oil as a hedge against inflation and a slumping greenback.