12:43 PM
BEIJING/WASHINGTON |
BEIJING/WASHINGTON (Reuters) - 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.
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