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Mounting risk of inflation is a serious concern for the financial leaders of the world’s top economies. In a recent meeting of Group 20, all the leaders have given the danger of inflation top priority to handle. In the meeting emphasis was laid on to make preparations to adjust interest rate or currency policy to deal with the imminent threat in the wake of energetic global growth.

In the meeting tensions over currency policies and currency policy of China in particular emerged at the meeting. At the meeting there was no mentioning of China but leaders hinted at the need of appropriate currency flexibility. On the other hand, U.S. showed its intension to discuss currency flexibility with China. It is widely alleged that China has maintained yuan at a very low level to boost its export.

Another concern surfaced in the meeting was the prices of oil as it has significant and quick implications on the inflation. This is the reason why it was decided that there is no room for complacency despite oil prices are falling.

However, as so far interest rate adjustment is concerned, the U.S. and the EU would be required to be very vigilant in their respective economies. In reality, the recent crash of U.S. housing market is the biggest risk for the global growth since it has dropped steeply by 14.6 percent to touch the lowest level in six years. Obviously, this crash has simmering effect on the economy at home and abroad. The financial low in the housing market might have affected US house hold spending.

In this situation an abrupt slowdown, consequently demand would be dried up; of U.S. economy will have greater implications on the countries that export to the U.S. Of course, a gradual slowdown will offset the huge U.S. current account deficit and international trade balances. However, developing nations such as India, China and Brazil are likely to play a crucial role in offsetting the growing inflation threat.

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