Energy, Commodity Demand, Prices Seen Holding - IMF
London, May 09 2008
“Rising energy and commodity prices are central to inflation concerns, and despite a global growth slowdown, demand and prices were expected to hold firm, International Monetary Fund (IMF) … First Deputy Managing Director John Lipsky said, speaking at the Council of Foreign Relations in New York.
The recent spike in energy and commodity prices is reflective of fundamentals and is already causing food shortages in some poor countries, Lipsky said. 'With only temporary relief likely, we expect that agricultural prices will remain high for the foreseeable future as supply responses may require both new investment and policy reforms,' Lipsky said. … 'Emerging and developing economies as a group have accounted for about 95 percent of the growth in demand for oil since 2003,' Lipsky said.
While agricultural production and transportation costs have responded to rising oil prices, real food prices remain well below previous peaks by historical standards, Lipsky said. Some countries have installed export restrictions to ensure that domestic populations have sufficient food, but these are negatively impacting those that rely on food imports. …" [Reuters/Factiva]
Dow Jones adds that "The IMF urged central banks in developing nations to raise interest rates to fight inflation caused by rising fuel and food costs. The message was aimed particularly at Russia, Saudi Arabia, China and countries in Eastern Europe where inflation has picked up substantially. 'For emerging economies with currencies closely linked to the dollar that are fighting overheating concerns, macroeconomic policies need to be tightened in response to generalized inflation pressures,' said Lipsky…
Countries should reduce subsidies and price controls on fuel, so that consumers feel the full effect of the price increases and thus cut back on purchases. He said that some subsidies were warranted 'to buffer consumers from brusque price shifts.' He also urged Middle Eastern oil exporters to focus their spending on infrastructure so they can speed more supply to the market.
To reduce pressure on food prices, he urged a reduction in biofuels subsidies. …He also urged developing countries to boost agricultural productivity and end export restrictions on rice." [Dow Jones/Factiva]
FT writes that "…Lipsky said the forces pushing commodity prices up appeared 'to be fundamental in nature' - and were amplified by lower US interest rates and a decline in the dollar.
He added that policymakers must respond aggressively to any sign of rising inflation expectations 'lest the impressive gains in global stability attained in recent years be sacrificed'." [The Financial Times (UK)]
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