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Fears that oil price is fuelling inflation
Central bankers around the world raised concerns about the inflationary impact of higher oil prices on Thursday as crude rose to nearly $40 a barrel in New York - its highest level since October 1990.Oil prices have risen by 22 per cent this year. Traders fear tight supplies will be even further stretched by rising tension and attacks in the Middle East. World equity markets retreated in response to inflation fears and the prospect of rising interest rates. The Dow Jones Industrial Average had fallen by just over 1 per cent at mid-session on Thursday. In the UK the Bank of England pointed to the need to keep inflation under control as a reason for raising its main interest rate by a quarter-point to 4.25 per cent on Thursday. In a statement explaining its decision the Bankâs monetary policy committee cited sharply rising commodity prices. Although the European Central Bank kept rates on hold at 2 per cent, Jean-Claude Trichet, its president, adopted a more hawkish tone towards price rises. He warned that increases in oil prices might pose "an upside risk to price stability" and that Eurozone inflation could rise above 2 per cent over the next few months. Last week Alan Greenspan, chairman of the US Federal Reserve, warned that the "dramatic" rise of oil and gas futures was "an economic event that can significantly affect the long-term path of the US economy". Earlier this week Mr Greenspan signalled that US interest rates would be raised soon, prompting speculative investors to start to reduce their risks. As a result, emerging market bond prices on Thursday suffered their worst one-day losses in nearly two years. JP Morganâs EMBI+ emerging debt index was down 2.2 per cent as European markets closed, the biggest one-day decline since July 2002. John Bates, analyst at West LB, said: "There was an irrational stampede to get out - there were only sellers in the market." Tony Blair, Britainâs prime minister, said he had spoken to oil-producing countries about the impact of higher oil prices. Mr Trichet also repeated his recent call for oil-producing countries to exercise "responsibility" on the price of oil. "It is is a matter of importance," he stressed. However, an Organisation of Petroleum Exporting Countries official said there was nothing the oil cartel could do to reduce the soaring crude price. Hossein Kazempour Ardebili, Iranâs representative on Opecâs board of governors, told Dow Jones newswires that security fears in the Middle East and the tight US petrol market had created a $6 a barrel premium in the oil price. Opec, which accounts for about one-third of global oil output, quashed market rumours of an emergency meeting when an official said there were no plans for a meeting before the next scheduled gathering in Beirut on June 3. Oil prices have risen about 5 per cent since Saudi militants attacked western expatriates at a petrochemical plant at the weekend.
Posted by: Mark Espinola 2004-05-07 |
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