Inflation accelerated in Asia and Europe in March while the United States bucked the global trend with underlying price pressures largely in check, leaving monetary policy on diverging paths around the world.
The euro zone joined the rapidly developing economies this month in raising interest rates to counter mounting price pressures.
In contrast, the Federal Reserve has shown no appetite to raise U.S. rates before unemployment has declined further and until the sluggish recovery is on a firmer footing. As a result the Fed's super-cheap money is taking some of the blame for fueling the commodity boom that is adding to inflation pressures elsewhere.
China and India reported higher-than-expected inflation on Friday. Prices of oil and grains in particular are climbing partly because strong economic growth in emerging market economies has outstripped demand in the developed world since the global financial crisis.
The mounting price pressures reflect the price of some commodities vaulting to record highs, with crude oil this month at $120 a barrel also, stirring investor concerns about inflation.
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 soon 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.
EURO ZONE AND U.S
Final March figures for the euro zone showed inflation jumped to 2.7 percent from 2.4 percent in February, slightly more than a preliminary forecast and the fourth month it has been above the European Central Bank's target of 2 percent.
The ECB was the first of the three major Western central banks to raise interest rates last week and it is expected to move again by July despite concern over the damage higher rates will do to economies like Portugal and Ireland struggling with high debt.
The big news in these numbers is that core inflation rose noticeably, said ABN Amro analyst Nick Kounis. Although we expect a rate increase at the July meeting, the balance of risks is tilted toward an earlier move.
In the United States, consumer prices rose by 0.5 percent in March to record a 2.7 percent year-over-year rate. But the core rate, which excludes volatile food and energy and is tracked most closely by the Fed, inched up only slightly by 0.1 percent for a tame year-over-year rate of 1.2 percent.
A separate survey on U.S. consumer sentiment showed that inflation expectations five years hence retreated to 2.9 percent from 3.2 percent, another indicator that is tracked by Fed officials.
The Fed is not going to see inflation as a threat, so they can keep interest rates low longer, said David Wyss, chief economist at Standard and Poor's in New York.
The central bank next reviews its policy path on April 26-27. Dealers expect its bond purchases to end this summer but in a Reuters poll they forecast no rate increase before the first quarter of 2012.
In contrast, 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.
Dong Tao, the chief China economist for Credit Suisse, expects tightening to resume in the second half of the year and 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.
(Editing by Stella Dawson)