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Sunday, June 15, 2008

Oil, food inflation being triggered mostly by fundamentals: Paulson

Staff writer

OSAKA — U.S. Treasury Secretary Henry Paulson said Saturday that despite the tough times, especially in the housing market, the United States economy will be fundamentally sound over the long term.

He also said that supply and demand problems, not speculators, were to blame for the drastic rise in oil prices recently.

Speaking at a news conference after the Group of Eight finance ministers met in Osaka, Paulson said the biggest threat to the U.S. economy was still the housing market.

"We're making progress, and the U.S. has strong, long-term fundamentals. But I believe it's very likely the housing market problem will spill over into next year," Paulson said.

On oil prices, Paulson said the role of speculators was not the fundamental problem.

"I emphasize that, while we're looking at (the role of speculators in the oil market), the evidence points to supply and demand. It's pretty clear we've not had much of an increase in production capacity in the last 10 years," Paulson said.

Paulson also rejected the view, shared by some G8 members and many NGOs and developing countries, that increased biofuel production worldwide — especially in the U.S. — is playing a major role in the food crisis.

"As for food price inflation, that's being driven primarily by economic fundamentals, including high energy prices, increased food demand, and low inventories," he said.

With additional reporting by Shihoko Nagayama

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