China and India both reported higher-than-expected inflation readings on Friday, giving fresh ammunition to central bankers and investors alike who are worried about mounting price pressures in the global economy.
Figures due later in the day from the euro zone and the United States are also expected to show that inflation, though still moderate, is steadily rising, not least because of higher food and energy costs.
Prices of oil and grain, in turn, are climbing in part because of strong growth in China, India and other emerging economies, which have shown the developed world a clean pair of heels since the global financial crisis.
The weakness in markets this week is expected after the smart comeback we have seen recently, with inflationary concerns again coming to the forefront, said Jan Lambregts, global head of financial markets research at Rabobank.
Consumer price inflation in China quickened to 5.4 percent in the year to March, the fastest rate since July 2008, from 4.9 percent in the first two months of the year.
In India, the Wholesale Price Index, the main inflation gauge, rose 8.98 percent in the year to March, up from 8.31 percent in the 12 months to February and beating market projections of an 8.36 percent reading.
Economists expect the central banks of both countries to tighten monetary policy further in short order to dampen inflationary pressure.
A rise in the proportion of deposits that Chinese banks must hold in reserve, rather than lend out, could be imminent after Premier Wen Jiabao in midweek reaffirmed his determination to keep a lid on prices.
Core inflation, excluding food and energy, was the highest in China in a decade. In India, too, a sharp upward revision to figures for January has led some economists to the conclusion that underlying price pressures are greater than they had thought.
It seems that inflation trajectory has changed. The expected decline in inflation is just not happening and looks like we have underestimated the underlying pressure on prices, said Ashutosh Datar, an economist at IIFL in Mumbai.
More monetary tightening is inevitable after today's data and the case for a 50 basis point hike in May is strengthened, he added.
Dong Tao, the chief China economist for Credit Suisse, said he did not think inflation would fall back as much as others expect. As a result, monetary tightening would continue in the second half of the year, he said in a report.
The People's Bank of China, the central bank, has increased benchmark interest rates four times since last October and has required the country's big lenders to freeze a record 20 percent of their deposits.
Tao expects the rate banks offer on one-year deposits to rise another 1.5 percentage points by the end of the year.
In our view, China is by no means near the end of the current tightening cycle. Food inflation is transitory, but service inflation and wage inflation are structural, he said.
That bodes ill for Western economies that are big buyers of manufactured goods assembled in China. If imported inflation keeps climbing, central bankers will have to press down domestically generated prices if they want to hit their overall inflation targets.
Final March figures for the euro zone are likely to confirm that consumer price inflation accelerated to 2.6 percent in the year to March from 2.4 percent in February, well above the European Central Bank's target of just under 2 percent.
Economists expect annual consumer price inflation in the United States in March to have accelerated to the same rate as in the euro zone, 2.6 percent, from 2.1 percent in February.
But the core consumer price index, which is tracked more closely by the Federal Reserve for monetary policy purposes, is forecast to have gained just 0.2 percent on the month -- the same increase as in February.
Fed officials have said they would act to ensure an inflation psychology does not take root. But they largely regard the recent spike in food and energy prices as transitory. Moreover, analysts expect subdued labor costs will keep a lid on inflation.
Fed Governor Daniel Tarullo said on Thursday there are no signs that surging energy and commodity prices would translate into higher underlying inflation. Commodity prices were notoriously volatile, he noted.
But two prominent anti-inflation hawks, Richmond Fed President Jeffrey Lacker and Philadelphia Fed President Charles Plosser, said the recovery was strong and suggested the Fed needs to prepare to withdraw some of the extensive stimulus the central bank has provided.
The apparent strengthening of the U.S. economy suggests that, in the not-too-distant future, monetary policy will begin reversing course from a very accommodative policy stance, Plosser said in New York.
(Reporting by Alan Wheatley; Editing by Ken Wills)