July 8 (Bloomberg) -- Group of Eight leaders said rising oil and food costs pose a ``serious challenge'' to the global economy, indicating inflation has become their primary concern.

``We have strong concerns about the sharp rise in oil prices,'' the group said in a statement today in Toyako, Japan, where the leaders are holding their annual summit. ``The world economy is now facing uncertainty and downside risks persist.''

Leaders from the U.S., Japan, Germany, Italy, Britain, France, Canada and Russia proposed holding a forum between energy producers and consumers to focus on energy efficiency after oil prices reached an unprecedented $145.85 a barrel on July 3. The MSCI World Index of stocks fell today to the lowest in almost two years on concern global inflation will slow economic growth.

``The global outlook is definitely more cloudy with oil prices where they are,'' said David Cohen, director of Asian economic forecasting at Action Economics in Singapore. ``Inflation is a strain on household budgets for everybody.''

While the G-8 leaders made no specific reference to the dollar, President George W. Bush told his counterparts that maintaining a strong U.S. currency was in the best interests of the world's biggest economy, according to administration adviser Dan Price.

Dollar's Drop

The dollar has fallen 12 percent against the yen and 15 percent versus against the euro since the last G-8 summit held in Heiligendamm, Germany, concluded June 8 last year.

The statement said some emerging market countries with growing current account surpluses needed to allow their currencies to ``move so that necessary adjustment will occur.'' No currency was specified.

The G-8 leaders said they ``remain positive'' about the long-term outlook for their economies and pledged to take ``appropriate actions'' to ensure stability.

``We express our strong concern about elevated commodity prices, especially of oil and food, since they pose a serious challenge to stable growth worldwide, have serious implications for the most vulnerable, and increase global inflationary pressure,'' the statement said.

Today's statement suggests inflation concern mounted since G-8 finance ministers met in Osaka last month. At that meeting, the ministers indicated that rising commodity prices ``may'' increase inflationary pressure.

Crude oil doubled since last year's G-8 summit in Germany, increasing the threat to global growth. Crude for August was trading at $141.71 a barrel at 3:01 p.m. in Singapore.

Faster Inflation

Record corn, wheat and rice prices have also contributed to accelerating inflation, which the International Monetary Fund predicts will be the fastest in advanced economies since 1995 this year even as growth is the slowest in seven years.

Rising prices threaten to damp growth further by sapping household budgets and boosting production costs.

``They have clearly signaled that public enemy number one is inflation,'' said John Kirton, director of the G-8 Research Group at the University of Toronto.

The Bank for International Settlements last month recommended the world's central banks raise interest rates. Monetary authorities in the U.S., Canada, U.K. and Japan haven't tightened policy since financial markets seized up last August. The European Central Bank increased its benchmark rate by a quarter point to 4.25 percent last week.

The leaders called on energy-producing nations to increase short-term capacity and invest more to bolster supply in the ``medium term.'' They also called on oil-consuming countries to increase energy efficiency.

Global Economy

``The summit recognizes quite clearly how serious to the global economy'' are high oil prices, International Energy Association Executive Director Nobuo Tanaka said in an interview before the statement was released.

Corn surged 26 percent last month and soybeans jumped 15 percent as the worst Midwest floods since 1993 ravaged parts of the U.S.

The MSCI World Index fell 0.9 percent to 1352.26 at 5:25 p.m. in Tokyo, headed for the lowest close since Sept. 12, 2006.

To contact the reporter on this story: Toko Sekiguchi in Toyako, Japan, at tsekiguchi3@bloomberg.net

Last Updated: July 8, 2008 04:33 EDT