A weaker dollar cannot be blamed for soaring oil prices as policymakers around the world tussle with the twin spectres of rising inflation and slowing growth, U.S. Treasury Secretary Henry Paulson said on Thursday.
Some of the world's leading oil producers and market analysts say the weak dollar is a key factor spurring many dollar-denominated commodities -- including oil -- to record highs, pushing the cost of living higher across the world.
It is rare for the United States government to say anything about the greenback beyond its mantra that it believes in a strong dollar, but developed nations are ramping up the rhetoric in an effort to get oil producers to increase supply and help tame inflation.
"The dollar has had a very small impact," Paulson told reporters in London, after a meeting with top British bankers and British finance minister Alistair Darling. "Take a look, the dollar has depreciated roughly 24, a little bit less than 25 percent, since February 2002. Oil has gone up well over 500 percent. It's gone up in every currency."
The dollar is currently languishing near record lows against the euro after a run of aggressive interest rate cuts from the U.S. Federal Reserve and worries over U.S. economic growth. Oil prices hit a fresh record high above $145 a barrel on Thursday. Prices have doubled in the past year.
Inflation has now taken top billing in most central bankers' deliberations, with markets expecting higher borrowing costs despite sharply slowing growth in Europe and the United States.
Central bankers in Europe have said one factor also helping to boost commodity prices skywards is the policy of fast-developing economies in the Asia and the Middle East of pegging their currencies to the dollar.
Those pegs have triggered a more expansionary monetary policy than might be necessary -- as falling interest rates in the United States have been mirrored to track a weaker dollar -- helping to spur growth and consequently demand for commodities. Paulson said, however, that market fundamentals were to blame.
"I believe that although there may be a number of factors with regard to oil, the predominant factor by far is supply and demand, is the fact that global production and capacity hasn't increased appreciably over the last 10 years and the demand has continued to grow and inventories are at low levels," he said.
"Only if you acknowledge the issue are we going to be able to deal effectively with finding a solution."