Finance officials of the world's seven richest nations warned Saturday that spiraling oil prices pose a twin threat to the global economy: higher inflation and slower growth.
Finance ministers and central bank chiefs of the so-called Group of Seven also sought to reassure world markets that although stock and currency prices have declined since Iraq's Aug. 2 invasion of Kuwait, the declines have been orderly.The group consists of the United States, Japan, West Germany, Great Britain, France, Italy and Canada. The meeting was held at the Blair House, the presidential guest residence across the street from the White House.
After a full day of discussions, the officials issued a communique noting "that the rise in the price of oil associated with the gulf crisis poses two risks: a risk of inflation and a risk of lower economic growth" and said "stability-oriented monetary policies and sound fiscal policies constitute the correct policy response."
Treasury Secretary Nicholas F. Brady, who along with Federal Reserve Board Chairman Alan Greenspan served as host of the meeting, said the communique equally emphasizes the danger of slower growth and greater inflation.
"There was no intention to say one risk was greater than the other," Brady told reporters.
However, other participants, notably the Germans, emphasized the anti-inflation message in the statement.
Leading up to the meeting, private analysts had been pointing to a split between the U.S. administration, which is trying to keep growthgoing into this fall's congressional elections, and the other major economic powers.
West Germany and Japan fear that any attempt to induce growth with lower interest rates would only worsen inflation at a time when oil prices have nearly doubled, from $18 a barrel in July to $35 a barrel last week.
West German Finance Minister Theo Waigel, briefing reporters, stressed the passage in the communique on the importance of the fight against inflation.
The ministers appeared to endorse recent development in exchange markets, which have seen the Japanese yen strengthen and the dollar weaken.
A weaker dollar helps reduce the U.S. trade deficit by making U.S. goods cheaper to foreign buyers, but it hurts inflation in the United States by making imports more expensive.