BOJ says commodity rise partly driven by cheap money

Saturday, 26 February 2011 00:00 - - {{hitsCtrl.values.hits}}

* Advanced nations’ easy policy seen fuelling commodity spike

* Strong emerging economy growth key reason for rising costs

TOKYO, Feb 25 (Reuters) - Advanced economies’ easy monetary conditions are among factors accelerating commodity price rises, the Bank of Japan governor said, urging central banks to consider the repercussions on global growth in guiding policy.

BOJ Governor Masaaki Shirakawa also said on Friday that strong growth in emerging economies was basically behind the spike in commodity costs, warning that some central banks in those countries have been behind the curve in tightening credit.

“Emerging economies face strong inflationary pressures basically because they are achieving high growth on robust domestic demand and a favourable cycle between production, income and spending,” Shirakawa told a parliamentary committee.

“In addition, emerging economies have been slow to correct their monetary easing policies and are managing fixed currency exchange rates. This is one factor that has made it difficult to cap inflationary pressures.”

Inflation fears stemming from rising commodity prices have nudged several Asian central banks to raise interest rates, threatening to hurt demand in Japan’s key export destinations.

Some emerging economies have criticised central banks of advanced nations, notably the U.S. Federal Reserve, for exporting inflation by flooding global markets with cash through its ultra-easy monetary policies.

Shirakawa said that both advanced and emerging economies need to consider how their own policies will affect the global economy, and how the fallout will influence their own economies. “Commodity prices have risen on the back of strong growth in emerging economies,” Shirakawa said.

“Advanced economies’ continued monetary easing has also helped accelerate demand-driven rises in commodity prices.”