G8 frets over commodity shock, shrinks from action

The world's richest nations warned yesterday soaring commodity prices may slice into economic growth, but shrank from offering any plan to calm markets or quell protests over the cost of fuel and food.

Currencies were not discussed in a meeting of G8 finance ministers in Osaka, Japan, after a string of tantalising comments about a weak dollar's role in inflation, and analysts said the currency would likely dip tomorrow.

An Italian push for regulation to snuff out speculation in oil futures ran into US and British resistance.

Most ministers appeared more worried about slowing growth in economies hit by a credit crisis than about rising prices, just as most G8 central banks gird up to fight inflation.

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

US Treasury Henry Paulson said costly oil could extend a US slowdown, the International Monetary Fund talked of prolonged global economic weakness and European Union Economic Commissioner Joaquin Almunia warned of 1970s-style stagflation in an interview with a Japanese newspaper.

The Group of Eight ministers acknowledged the difficulty of supporting growth after a US housing slump triggered a global credit crisis. The risk of record oil and food prices percolating into wages and other costs had made "policy choices more complicated", they said.

The ministers, preparing for a summit meeting of G8 leaders next month, had been meant to tackle threat of inflation from surging commodity prices, especially oil.

G8 countries, mostly importers of crude, wield little influence over oil markets that are driven by demand growth in India and China, and concerns about supplies.

But they can try to arrest a slide in the US currency that has prompted investors to buy oil futures and other commodities to hedge dollar risks. The Italians pushed for rules that would make trading in oil futures more expensive to discourage speculation, drawing a cool response from the United States and Britain, home to big oil trading markets.

"At its heart, this run up in price reflects long-term trends in global supply and demand and strong economic growth coinciding with a period of minimal investment in oil production," Paulson said.

As a compromise, ministers asked the IMF to look into the drivers of oil's rise towards records near $140 a barrel.

"It is sometimes difficult to distinguish between an airline that may hedge its fuel price, which is perfectly sensible planning, and someone who is speculating or even gambling on the price of oil," British finance Minister Alistair Darling said.