By Yoko Nishikawa
TOKYO (Reuters) - G8 leaders aim to present a united frontagainst global inflation, driven by soaring oil and foodprices, at a summit in Japan next week, but solving the problemrequires more than just a strong message from rich nations.
As record high oil prices threaten the global economy andfood riots undermine political stability in some countries, theGroup of Eight (G8) will try to draw up measures to balance thesupply and demand of oil, officials from member countries said.It will also aim for closer cooperation with oil producers.
When leaders from the G8 -- the United States, Britain,Canada, France, Germany, Italy, Japan and Russia -- gather atthe July 7-9 summit in Hokkaido, northern Japan, they willdiscuss concerns that a weaker dollar is a factor behind highoil prices.
But with finance ministers and central bankers absent, theywill probably make little headway. A German government sourcesaid while inflation was on the agenda, the G8 chiefs would notmake interest rate recommendations to central banks.
"It is being questioned what kind of a message we will beable to send on rising oil prices," said Japan's point-man inpre-summit negotiations, Deputy Foreign Minister MasaharuKohno.
He added that "there may not be a revolutionary panacea"for solving the problem of surging oil prices, which hit arecord high of $145.85 on Thursday.
The German source agreed, saying G8 leaders were not in aposition to reverse the trend of high prices. But the sourcebelieves a clear statement would help.
Analysts said a show of concern by the G8 would not beenough to ease global inflation, which took the centre stagejust as the world economy was starting to recover from thecredit crisis.
"The summit faces unprecedented challenges amid signs ofstagflation, which had not been seen in 30 years," said KyoheiMorita, chief economist at Barclays Capital Japan.
"But there is a mismatch between the themes of the summitand who is participating, making it hard to actually implementany concrete and effective steps," he said. He noted that OPECoil producers and Southeast Asian counterparts, whose traderestrictions helped push up commodity prices, would not bejoining the G8 summit.
WHAT CAN G8 DO?
Rising oil and food prices not only fuel inflation but alsohamper global growth by hurting businesses and consumption,posing a serious challenge to policymakers who cannot controlthe increasingly globalised, free-market economy.
"There is a limit to what governments can do now," aJapanese government source told Reuters on condition ofanonymity.
"It is important to reach a global consensus on what'shappening in the global economy, but the summit cannot alwaystrumpet action plans."
Tatsuo Kageyama, analyst at Kanetsu Asset Management, saidoil prices would stay high partly due to speculative moneyflowing into the oil market and the perception that demand willremain strong in the long run while supplies are tight.
"I don't think G8 leaders can calm down this market. Themarket doesn't have high hopes for a turnaround in the market."
Kyodo news agency reported on Thursday that the leaderswould vow to closely watch crude oil futures markets and stressthe need to save energy by developing and using newtechnologies and alternative energy sources.
The agency quoted a draft for the G8's post-summitstatement as saying joint efforts were necessary to expandinvestment in the development of oil supplies. The draft alsohighlights the importance of open raw materials markets for theefficient allocation of resources, Kyodo said.
TENSION OVER WEAK DOLLAR
Helped by surging oil and commodity prices, food securityhas muscled its way onto the summit agenda. The World Bankestimates up to 105 million people could become poor due torising food costs.
Koji Tsuruoka, director-general for global issues atJapan's foreign ministry, said the G8 leaders are likely toissue a separate statement on food prices. The statement willprobably call on governments to release available foodstockpiles or reserves to global markets and seek steps toboosts agricultural output in developing countries, he said.
As the G8 summit approaches, some countries blame a weakerdollar for pushing up oil prices. As the U.S. currencydeclines, it costs more to buy oil and gold in dollar terms,and thus, a weaker dollar can exacerbate rises in commodityprices.
Against this backdrop, the United States is increasinglyfinding itself having to defend its economic policy to foreignleaders who are battling inflation.
The G8 leaders could discuss the dollar as one factorbehind surging oil prices, a Japanese foreign ministry officialsaid.
Whether such currency talk will help is another question.With the European Central Bank raising interest rates to theirhighest level in nearly seven years on Thursday, U.S. effortsto talk up the dollar seem to be in vain.
(Additional reporting by Yuko Yoshikawa, Gernot Heller,Chikafumi Hodo, Linda Sieg and Rodney Joyce; editing by SophieHardach)
