Emerging economies growth jacking up commodity prices

Paris: The US Federal Reserve on Friday blamed high growth in emerging nations for rising commodity prices which in turn is affecting the global economy.

"Resurgent demand in the emerging markets has contributed significantly to the sharp recent run-up in global commodity prices," Federal Reserve Chairman Ben Bernanke said here at the Banque de France Financial Stability Review Launch Event.

Bernanke`s remarks coincide with the meeting of finance ministers of G20. Generally, governors and heads of central bank meet a day or two in advance of the meeting of their Finance Ministers.

India along with several other emerging economies like China has retained high growth, even up to 10 per cent, even while the global economy was grappling with the slowdown and recession in several countries.

However, the emerging economies face the new challenge of inflation, particularly of food items.

Bernanke also said capital flows to emerging economies are posing some notable challenges for international macroeconomic and financial stability.

"These capital flows reflect in part the continued two-speed nature of the global recovery, as economic growth in the emerging markets is far outstripping growth in the advanced economies," he said.

Bernanke said the policy makers in emerging market have range of powerful tools to manage their economies and prevent overheating.

However, "… it should be borne in mind that spillovers can go both ways," he said.

He said resurgent demand in the emerging markets has contributed to the sharp recent run up in global commodity prices.

In this backdrop, "our collective challenge is to reshape the international monetary system to foster strong, sustainable growth and improve economic outcomes for all nations," he said.

Bernanke said to achieve a more balanced international system over time, countries with excessive and unsustainable trade surpluses will need to allow their exchange rates to better reflect market fundamentals and increase their efforts to substitute domestic demand for exports.

"At the same time, countries with large, persistent trade deficits must find ways to increase national saving, including putting fiscal policies on a more sustainable trajectory," he said.

Capital flows to emerging markets have been driven by many factor, including expectations of more rapid growth and thus higher investment returns in the emerging market economies than in advanced economies.