D-8 nations warn of disaster from food, fuel crisis

Warning that escalating food and fuel prices could lead to disaster, a group of developing Muslim nations called on Tuesday for urgent measures to lift food and oil output and a rethink on bio-fuels.

Malaysia and Indonesia, the world's largest producers of palm oil, told the summit of eight developing Muslim-majority countries (D8), that they wanted to see an end to the conversion of arable land for bio-fuel production.

Palm oil is used as a feedstock to produce biofuel and also widely consumed in the region as cooking oil.

Leaders of the eight nations comprising nearly one billion people said at the summit in Kuala Lumpur that the twin problems of food and energy security were putting a severe strain on their countries, especially on the poor.

The group of Developing Eight (D-8) countries -- Iran, Indonesia, Egypt, Malaysia, Turkey, Pakistan, Nigeria and Bangladesh -- represent about one billion people, or 14 percent of the world's population.

"We must act on it once and in concert. To delay action on this great challenge of our time is to court disaster," Indonesian President Susilo Bambang Yudhoyono told the meeting.

Yudhoyono's popularity in his country has slumped because of a fuel price hike which also sparked numerous street protests.

Other leaders, including host Malaysian Prime Minister Abdullah Ahmad Badawi, also painted a gloomy picture of the crisis, which has seen crude oil prices at record highs and food prices rising by more than 75 percent since 2000.

"There is also the danger of the food crisis creating political unrest in many societies," Abdullah said. "I think this meeting must come out with a clear message on the need to boost food production in the world."

Abdullah's popularity has also taken a beating after his government hiked up fuel prices.

The leaders are expected to discuss a Malaysian proposal for joint investments in food-related projects such as a fertilizer plant.

"If we can have a big economic project, a big fertiliser project as a D-8 project to cater for the needs of its members as well as for exports, I think that will be very good," Abdullah told Reuters in an interview on Monday. "Some of the D-8 countries are also oil producing countries, that can assist us."

Most fertiliser plants use gas and naphtha as feedstock.

Iran's President Mahmoud Ahmadinejad and Pakistan Prime Minister Yousaf Raza Gilani are also attending the one-day summit.

Yudhoyono and Abdullah told the meeting that the bio-fuel frenzy has worsened the global food crisis.

"We must not allow the zeal for energy security to come into direct conflict with the basic needs for food production," Abdullah said.

An estimated 1 percent of the world's arable land is used for biofuels, a figure that will rise to between 2.5 and 3.8 percent by 2030, depending on policy incentives in different countries, according to International Energy Agency figures.

And use of food such as maize, palm oil and sugar to produce biofuel has been blamed in part for record high commodity prices which are driving millions of people into hunger.

But the expansion of Malaysia and Indonesia's palm oil driven biodiesel industry has been hampered by sky-high prices of the commodity which is also used in hundreds of food products and in a wide range of consumer goods from soap to cosmetics.

Asian, European ministers say price rises threaten stable growth

Asian and European finance ministers warned on Monday that surging prices for oil, food and other commodities threaten stable world economic growth.

Wrapping up a two-day meeting dominated by the issue, they said in a statement the increases "pose a serious challenge to stable economic growth worldwide and have serious implications for the most vulnerable."

The ministers or their deputies from 27 EU countries and 16 Asian nations called for coordinated policy responses to cushion the impact, including greater investment in agriculture and energy and the maintenance of open markets.

"Ministers highlighted the need for further analysis on the real and financial factors behind the recent surge in commodity prices, their volatility and the effects on the global economy," the statement said.

Delegates to the Asia-Europe Meeting (ASEM) of finance ministers, on the South Korean resort island of Jeju, said they remain positive about the long-term global economic outlook but short-term prospects had weakened.

Downside risks included the US slowdown, tightened credit in world financial markets and "mounting inflationary pressures mainly driven by high energy and food prices."

The ministers, whose countries represent 60 percent of the world's population and about half its output, stressed that both Asia and Europe are "significantly more resilient" to external shocks than a decade ago.

But they cannot be fully immune to global economic risks, they said.

The meeting has been marked by warnings of the potential dangers posed by rapidly rising commodity prices.

South Korean President Lee Myung-Bak said the world faces its most serious economic crisis since the 1970s.

"Instability in the global financial market has spread to the real economy, thus putting a damper on world economic growth," Lee said in a speech. "Coupled with a steep hike in the price of oil, food and raw materials, it is now no exaggeration to say that the global economy is faced with the most serious crisis since the oil shocks of the 1970s."

Lee's own government is grappling with a truckers' strike over high fuel prices, the latest in a series of sometimes violent protests worldwide.

Haruhiko Kuroda, president of the Asian Development Bank, called for safety nets for the poor, reforms to agriculture and measures to increase productivity.

"Food prices can become a very sensitive economic and political issue (in Asia)," he said.

French finance minister Christine Lagarde called on oil producers to expand output and pressed for more investment in exploration to drive the price down.

"In the short and longer terms there are global proposals that need to be endorsed -- number one, an increase of production, and number two, additional exploration and production of oil," Lagarde told reporters.

The French minister also urged a change in energy mix patterns and consumption and a "better understanding of how the market functions."

Lagarde last weekend attended a Group of Eight meeting of finance chiefs, at which some delegates expressed suspicion that speculators were driving up oil prices.

She said ministers, meeting in closed session earlier Monday, concluded that Asia and Europe had coped better than expected with the crisis.

"The economies in the two regions have been more resilient than expected, but both need to continue to work to fight rising prices as well as support economic growth."

G8 set to warn oil, food price shock endangers world economy

World finance chiefs are set to warn on Saturday that soaring food and oil prices threaten the global economy, and some blame could fall on the weak dollar.

The officials from the Group of Eight (G8) rich nations held setpiece talks on the last day of their meeting as concerns grow about the economic damage from a doubling of food costs in three years and sky-high oil prices.

The G8 joint statement due later Saturday in the western Japanese city of Osaka may not mention the dollar.

But the ministers likely talked about the currency as its weakness can stoke the dollar price of commodities and inflation.

A G8 source said the group would warn in the communique that high oil and food prices pose serious risks to global economic growth, the fight against poverty and inflation.

"Elevated commodity prices, especially of oil and food, pose serious challenges to a stable growth worldwide, have serious implications for the most vulnerable and may increase global inflationary pressures," according to a draft version of the statement.

"These conditions make our policy choices more complicated," it said, adding the G8 powers would stay vigilant and try to ensure economic stability and growth. The source providing the information asked not to be named.

The G8 was also expected to call on energy-producing nations to boost their oil production capacity to help rein in crude oil prices, which surged in June to nearly 140 dollars per barrel and are up fivefold since 2003.

The cost of fuel has led to protests worldwide, ranging from tens of thousands of truck drivers striking in Spain and Portugal, to street rallies throughout Asia over hikes in subsidised energy prices.

Protests over food prices have included riots in Egypt, Haiti and other nations. Amid the mounting anger, a UN food summit earlier this month pledged "urgent" action and some 6.5 billion dollars in aid to fight the crisis.

The G8 powers discussed the higher prices at a dinner Friday with officials from Australia, Brazil, China, South Africa, South Korea and Thailand, and the heads of the World Bank and International Monetary Fund.

The officials shared the view that the problem had become a huge challenge and serious threat to developing countries, especially for the poor, according to a Japanese finance ministry official who wished to remain anonymous.

The rise in commodity prices also comes as the US also battles a sharp slowdown sparked by a mortgage default crisis that ballooned into a global credit crunch. But the oil and food price shock has become the key worry.

IMF head Dominique Strauss-Kahn said Friday on the sidelines of the meeting that the worst of the credit crisis appeared over, while warning inflation was once again a serious problem.

"We have good reason to think that the financial crisis is mostly behind us but it's too soon to say" for sure, he said, adding that the IMF thought a proper economic recovery was unlikely until 2009.

The G8 meeting began Friday and gathered the top finance officials from Britain, Canada, France, Germany, Italy, Japan, Russia and the United States.

Washington had been talking tough on the dollar ahead of the G8 meeting to boost the currency, analysts said, bidding to keep a lid on inflation and limit the need for interest rate hikes that could stifle economic growth.

The US currency strengthened on Friday as international markets watched events in Osaka for signs of increased concerns about the dollar, which has fallen about 25 percent since early 2002.

The officials from the Group of Eight (G8) rich nations held setpiece talks on the last day of their meeting as concerns grow about the economic damage from a doubling of food costs in three years and sky-high oil prices.

The G8 joint statement due later Saturday in the western Japanese city of Osaka may not mention the dollar.

But the ministers likely talked about the currency as its weakness can stoke the dollar price of commodities and inflation.

A G8 source said the group would warn in the communique that high oil and food prices pose serious risks to global economic growth, the fight against poverty and inflation.

"Elevated commodity prices, especially of oil and food, pose serious challenges to a stable growth worldwide, have serious implications for the most vulnerable and may increase global inflationary pressures," according to a draft version of the statement.

"These conditions make our policy choices more complicated," it said, adding the G8 powers would stay vigilant and try to ensure economic stability and growth. The source providing the information asked not to be named.

The G8 was also expected to call on energy-producing nations to boost their oil production capacity to help rein in crude oil prices, which surged in June to nearly 140 dollars per barrel and are up fivefold since 2003.

The cost of fuel has led to protests worldwide, ranging from tens of thousands of truck drivers striking in Spain and Portugal, to street rallies throughout Asia over hikes in subsidised energy prices.

Protests over food prices have included riots in Egypt, Haiti and other nations. Amid the mounting anger, a UN food summit earlier this month pledged "urgent" action and some 6.5 billion dollars in aid to fight the crisis.

The G8 powers discussed the higher prices at a dinner Friday with officials from Australia, Brazil, China, South Africa, South Korea and Thailand, and the heads of the World Bank and International Monetary Fund.

The officials shared the view that the problem had become a huge challenge and serious threat to developing countries, especially for the poor, according to a Japanese finance ministry official who wished to remain anonymous.

The rise in commodity prices also comes as the US also battles a sharp slowdown sparked by a mortgage default crisis that ballooned into a global credit crunch. But the oil and food price shock has become the key worry.

IMF head Dominique Strauss-Kahn said Friday on the sidelines of the meeting that the worst of the credit crisis appeared over, while warning inflation was once again a serious problem.

"We have good reason to think that the financial crisis is mostly behind us but it's too soon to say" for sure, he said, adding that the IMF thought a proper economic recovery was unlikely until 2009.

The G8 meeting began Friday and gathered the top finance officials from Britain, Canada, France, Germany, Italy, Japan, Russia and the United States.

Washington had been talking tough on the dollar ahead of the G8 meeting to boost the currency, analysts said, bidding to keep a lid on inflation and limit the need for interest rate hikes that could stifle economic growth.

The US currency strengthened on Friday as international markets watched events in Osaka for signs of increased concerns about the dollar, which has fallen about 25 percent since early 2002.

G8 finance chiefs to tackle soaring oil, food prices

Finance ministers from the Group of Eight rich nations this weekend will discuss ways to limit the economic damage of soaring oil prices that have eclipsed the credit crisis as their biggest worry.

But experts said the G8 powers have few obvious options to cool the commodities boom in the near future, with any calls for the Opec producer cartel to open up the taps likely to fall on deaf ears.

Soaring crude oil prices are causing growing concern in the major economies and raising the prospect of credit tightening by central banks to contain inflation, even as global economic growth slows, led by the United States.

While the fallout from the US credit crunch continues, the sense of alarm on world markets seen after the turmoil erupted last year appears to have eased, helped by central bank action to shore up the financial system.

Now soaring oil prices appear to have replaced the subprime loan crisis as the main worry for global policymakers, said Tim Condon, head of research at ING Financial Markets in Singapore.

"The subprime worries linger but the authorities, at least in the US, seem to be suggesting they pose less of a risk than they did, whereas the oil price shock is really pressing both on the growth and inflation fronts," he said.

Top finance officials from Britain, Canada, France, Germany, Italy, Japan, Russia and the United States will gather in the western Japanese city of Osaka for a two-day meeting starting on Friday.

Energy officials from G8 nations plus China, India and South Korea on Sunday called on major oil producers to increase investment to keep markets well supplied in response to rising world demand.

But Japanese Finance Minister Fukushiro Nukaga acknowledged last week that the G8 may not be able to come up with measures to reduce oil prices "overnight."

Oil producers insist there is no shortage of oil on global markets, blaming speculators and the weak US dollar. But analysts say they could still do more to take some of the speculative froth out of the market.

"I think OPEC's got justification to suggest that supply is really ample. It's certainly not tight. But I think what they choose to ignore is that they do have a big sway over sentiment," said Mark Pervan, head of commodities research at Australia and New Zealand Banking Group in Melbourne.

If speculators thought Opec would react to high prices by increasing supply, it would "take a fair bit of steam out of the market," he said.

Soaring food prices and joint efforts to tackle climate change are also expected to be high on the agenda at the G8 meeting.

Food prices have doubled in three years, according to the World Bank, hurting developing nations in particular and sparking unrest in some countries and food export restrictions in others.

Although central bank chiefs will be absent from this weekend's G8 meeting, markets will be looking for any signs of increased concern about the weak dollar, particularly in Washington.

Federal Reserve chairman Ben Bernanke has warned that a weaker dollar is adding to US inflation pressures.

But analysts said European officials may be reluctant to agree to saying anything in the joint statement that would drive down the euro as that would stoke inflation in the eurozone, leading to higher interest rates.

"We doubt that the Europeans would be so comfortable to watch the euro come off dramatically because of the extra inflation headache that could induce," said David Mann, currency strategist at Standard Chartered in Hong Kong.

If the G8 can help put a floor under the dollar, however, that could help to keep a lid on oil prices, analysts said.

There is a high inverse correlation at the moment between the dollar and oil prices, which are denominated in the US currency, said ANZ's Pervan.

"Where they can they'll try to talk the dollar up because they know it should have an impact on the oil price in the short term."

G7 to tackle soaring oil, food prices next week: Japan

Finance chiefs from the Group of Seven rich nations will discuss ways to try to rein in soaring oil and food prices when they meet next week, Japan's finance minister said on Wednesday.

But with growing demand, supply uncertainties and investment inflows all driving commodity prices higher, the G7 may not be able to come up with measures "to reduce them overnight", said Fukushiro Nukaga.

"It is important with regard to oil prices that consumer countries think about energy saving measures while producer countries can work to expand their production capabilities and to raise market transparency," he told reporters.

Finance ministers and central bank chiefs from Britain, Canada, France, Germany, Italy, Japan and the United States will gather in the western Japanese city of Osaka for a two-day meeting starting from June 13.

Nukaga said high oil prices would hurt the economy.

"For the past four years, oil prices have shot up greatly so if the current level of prices is maintained for a long time then of course it is bound to have an impact on countries' corporate earnings and personal spending," he said.

At the same, global food prices have more than doubled in recent years.

"Particularly for people in developing countries, who spend more than half of their household budget on food, the impact is really serious," Nukaga said.

He said the G7 would also discuss the ongoing fallout from a global credit squeeze sparked by a housing slump. Many of the world's major banks have suffered heavy losses on investments in mortgage-backed securities that have plunged in value due to the housing woes.

Nukaga said it was still "too early to say" whether an end to recent turmoil in financial markets was in sight as the problems in the US housing and credit markets had not yet been fully resolved.

Jump in food prices biggest in 18 years

Consumers had to shell out more for goods, services and especially food in April, according to a government report released Wednesday, but the rise was lower than expected.

The Consumer Price Index, a key inflation reading, rose 0.2% last month, according to the Labor Department. That was lower than the 0.3% jump recorded in March and fell short of 0.3% rise a consensus of economists surveyed by Briefing.com had forecast.

The rise in prices in April left overall prices 3.9% above where they were 12 months earlier, below the 4% rise on that basis in March.

Food spikes

Bloated food costs contributed the most to the index's rise. Seasonally adjusted food prices rose 0.9% on a month-over-month basis in April, making it the biggest jump in 18 years, according to the Labor Department. Last month's food costs were 5.1% higher than in April 2007.

Fruit and vegetable prices rose 2% in April, and bread prices increased 1.5% in the month. The cost of bread was 14.1% higher than the year-ago period.

The index for dairy products jumped 1.2%, and milk prices rose 0.9% last month. April's milk prices were 13.5% higher than in April 2007.

But prices for dining out grew only 0.3% in the month, as consumers held back on discretionary purchases and focused on necessities such as food from grocery stores.

"More folks are walking to work and bringing a brown-bag lunch," said Wachovia economist Mark Vitner in a report. "Higher food and energy prices are taking money out of consumers' pockets and causing folks to cut back on spending on just about everything else."

Energy's surprise flatline

Surprisingly, the Labor Department reported that seasonally adjusted energy prices did not rise from March's levels. Though unadjusted gasoline prices were up 5.6% in April from a month earlier, seasonal adjustments made to that estimate resulted in gasoline prices being down 2% on that basis.

That's despite the fact that gasoline prices posted a string of 16 straight daily record highs in April, according to the motorist group AAA. Other measures of national average gasoline prices, including the U.S. Department of Energy and AAA, showed gasoline prices and rose an average of 9% to 10% over the course of the month. Crude oil prices rose 11% in April.

"April and May is typically a period of rising gasoline prices, so that's definitely the number that sticks out," said Wachovia economist Sam Bullard, who expects the number to rise in May. "It seems to be a seasonal-adjustment issue."

Core CPI and the Fed

The closely watched core CPI, which strips out volatile food and energy prices, rose 0.1%. Economists had expected a 0.2% rise after a 0.2% jump in January.

Core CPI posted a 12-month change of 2.3%, down from a 2.4% rise on that basis in March.

The annualized inflation reading is still a bit above the perceived comfort zone of central bankers. The Federal Reserve is generally believed to want to see the 12-month change in core inflation readings remain between 1% and 2%.

The Fed launched a series of cuts to its key interest rate in September in an effort to boost the economy and stave off a recession. But the rate cuts tend to be inflationary, driving consumer prices higher.

The fed funds rate now stands at 2%. But in announcing the last rate cut in April, the central bank hinted that it would halt its rate-cutting campaign in an effort to stem the tide of inflation.

In a speech to a business group in Vancouver, British Columbia, on Tuesday, San Francisco Fed President Janet Yellen said inflation "departed from desirable levels" this year, but she expects it to moderate over the next two years.

In the meantime, rising food and fuel prices remain a concern for consumers - as the economy absorbs the stimulus payments aimed at spurring it that began in late April.

"The run-up in prices for basic necessities is one reason credit card balances are increasing so rapidly, and raises questions as to how much punch the tax rebates will provide to the overall economy," said Vitner.