Based on the evolution of the
futures markets, oil prices should fall only gradually over the next five years,
according to a report by the International Monetary Fund (IMF). Food prices are
also expected to decline gradually - in a relatively shorter interval. Some recent
price quotes and forecasts have already influenced the trade in wheat. But the
cost of raw materials, largely determined by the price of oil and its
derivatives, will continue to weigh heavily. None of these projections were
altered by the pointless G-8 summit, made up of the seven leading capitalist
economies and Russia.
Out of everything that was
said during the summit which ended yesterday in Hokkaido, Japan, there was only one clear message - and it was not encouraging:
the great powers have no joint approach with which to tackle the global economy's
momentous difficulties. Every country will have to take care of itself, if it
can - which is possible in Brazil’s case - and the poorest and most affected by the
food crisis and high oil prices can expect only modest assistance to avoid sinking
into misery and social and political chaos.
For now, such assistance is
being provided primarily - and almost exclusively - by the World Bank and the IMF.
The Fund is already committed to programs in Benin, Burkina Faso, Kyrgyzstan, the Central African Republic, Haiti, Mali and Niger - and may be able to extend relief to other economies
buffeted by the external shock.
With no future action being
articulated, each government and each central bank will have to chart their own
strategies to halt the surge in prices and avoid the escalation of inflation, which
is especially devastating for those on a salary and in general, for the poor.
The most rational message transmitted in Hokkaido was from the IMF's managing director, Dominique
Strauss-Kahn, who was invited to the G-8 event. "When you worry about high
oil and food prices, you should be concerned about growth, but even more
concerned about inflation ," he
recommended. The expansion of the global economy has already been undermined by
the surge in oil prices - which are up close to 70 percent since the beginning
of the year. This should reduce economic growth in 2008 by between .75 and 1
percentage point. But the inflationary pressure is not confined to oil and food
markets, noted the IMF managing director.
The challenge now,
Strauss-Kahn said, is to limit the secondary effects, the more wide-ranging price
increases. The IMF managing director argued that if the contagion continues, market
adjustment will be retarded, anxiety over inflation will hamper growth and the
poor will be disadvantaged, since they are the least capable of defending
themselves from inflation.
Posted by WORLDMEETS.US
In Brazil, the contagion is more and more evident. Already, it's
not just a case of imported inflation or pressure that is localized within
In the Brazilian economy, the
permanence of indexed contracts [contracts under which the terms depend on
fluctuating commodity prices] raises the risk of transmitting high prices. This
risk is increasingly clear in the evolution of the General Price Indices (GPIs)
calculated by the Getúlio Vargas Foundation . The Foundation's "General
Price Index - Domestic Availability from June," released yesterday, rose
1.89 percent in June. The 12-months increase reached 13.96 percent. The
Wholesale Price Index (WPI), the most important item in the general index, rose
2.29 percent over the last month and 17.9 percent over the last 12 months.
The increase in wholesale
prices doesn't necessarily transfer to retail, but such a result is more and
more likely as prices rise and demand drops, therefore affecting the resilience
of each link in the chain of production and supply of merchandise.
At this stage, the great task
of monetary authorities is to create barriers to prevent the contamination of
prices and salaries. The increase of inflation was classified by the National
Confederation of Industry (CNI, represents Brazilian industry) as "the
principal economic focus for the first semester [the first half of the year]."
In its newest report on economic conditions released yesterday, the projection
for growth in 2008 fell by 5 percent to 4.7 percent. The expected rate of
inflation rose from 4.7 percent to 6.4 percent, nearing the target ceiling of
The CNI hasn’t condemned the government's interest policies. On the contrary:
it welcomes as positive the "possibility of a greater link between fiscal
and monetary policies," given the government's promise to increase the budget
surplus to 4.3 percent of Gross Domestic Product. There are those that call
this "line" insufficient, but the Finance Minister [Guido Mantega ]
prefers to call those who demand more action be taken against higher prices "alarmist.