A threat to World economy

Rising oil and commodity prices are posing a threat to the global economy. Elevated
commodity prices, especially of oil and food, pose a serious challenge to stable growth
worldwide, have serious implications for the most vulnerable, and may increase global
inflationary pressure. The finance ministers and economists of G8 countries and experts from
emerging economies are all having the same opinion.

Oil producers are urged to increase production and increase transparency in the oil market in
order to slow down sky rocketing crude prices. A key OPEC member Saudi Arabia said it
planned to hike production by 500,000 barrels per day as crude prices peaked just below $140
per barrel.

The oil markets could be made more efficient by promoting greater transparency and
reliability in market data, including on oil stocks and on the size of financial flows coming
into the oil markets opine the world leaders. The G8 consists of the world’s seven richest
nations - the United States, Japan, Germany, Britain, France, Canada and Italy as well as
Russia.

US economic growth should gain speed by the year-end but is at heightened risk of a
prolonged downturn because of soaring oil prices. In U.S falling home prices, financial
market turmoil and lofty energy costs all weighed on growth.

While the concerned secretaries and economists are still working through housing and capital
markets issues, and expect to be doing so for some time, they also expect to see a faster pace
of US economic growth before the end of the year, while recognizing that the recent increase
in oil prices risks prolonging the US economic downturn.

Skyrocketing oil prices might induce a worldwide economic slump Saudi Arabia is planning
to increase oil production next month by about a half-million barrels a day. It is only news
and reality has to be seen.

Citing unnamed analysts and oil traders who have been briefed by Saudi officials, a
newspaper said the increase could bring Saudi output to a production level of 10 million
barrels a day. The move is seen as a sign that the Saudis are becoming increasingly nervous
about both the political and economic effect of high oil prices.

While they are reaping record profits, the Saudis are concerned that today’s record prices
might eventually dampen economic growth and lead to lower oil demand, as is already
happening in the United States and other developed countries, according to a report of media.

The current prices are also making alternative fuels more viable, threatening the long-term
prospects of the oil-based economy.

Saudi Arabia is currently pumping 9.45 million barrels a day, which is an increase of about
300,000 barrels from last month.
Crude oil prices slipped on a firming dollar and signs of slowing demand ahead of an
exceptional international oil summit in Saudi Arabia. New York’s main oil futures contract,
light sweet crude for July delivery, shed 1.88 dollars to close at 134.86 dollars a barrel.

The Organization of Petroleum Exporting Countries cut its 2008 estimate of growth in world
oil demand, as high prices and slower economic growth brake demand in major industrialized
countries, the United States in particular.

In Japan, finance ministers from the Group of Eight industrialized powers discussed runaway
crude oil prices and a global food crisis.

At a two-day meeting in Osaka, the G8 ministers will warn that high oil and food prices pose
serious risks to global economic growth.

Soaring gasoline prices helped drive up US consumer prices in May at the fastest rate in six
months, but core prices remained tame, easing inflation fears in financial markets. US
consumer sentiment tumbling to a 28-year low in June, with some lessening of expectations
on inflation one year out and a steady reading on long-term inflation expectations, which held
at a 13-year high.

However, so-called core prices, which exclude volatile food and energy cost, edged up just
0.2 percent. US bond prices and the dollar rose as traders scaled back expectations of Federal
Reserve interest rate hikes. The stock market welcomed the news on core inflation.

Surging gasoline prices and soft labor market conditions have depressed consumer spirits.
Today’s inflation numbers do not put any additional pressure on the Fed to hike interest rates.
The Fed is not nearly as behind the curve as some people currently believe.

Energy prices surged 4.4 percent in May, the biggest rise since November, after holding
steady in April. Gasoline prices spiked 5.7 percent, also the biggest rise in six months.

Over the past year, consumer prices have risen 4.2 percent on soaring food and energy costs,
the highest reading since January. But core prices are up a tamer 2.3 percent over the past 12
months. It seems the deep slide in housing markets continues to weigh on economic activity.
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