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Inflation Starts to Bite but Euro Trend Intact

I got off work the other evening and was horribly in the mood for a mango salad. So, mouth full of mango anticipation, I stopped by my local grocers only to be met by a sign: Mangos: £2.40 ($3.84).

Chinese Yuan note
RedChopsticks | Getty Images
Chinese Yuan note

Each.

WHAT?! Since when??! Since Mr. Inflation moved into your attic and became mainstream.

Chinese inflation is the latest big figure to spook us jumping to 32-month highs at 5.4 percent in March (as a viewer noted on my twitter page @louisabojesen, we now follow Chinese inflation much closer than US inflation...).

Make no mistake about it, the Chinese have been putting forth a lot of effort to cool down rapid expansion- China is the second-largest consumer of oil, but with its strong growth story continuing, Beijing may be forced to hike interest rates again to attempt to slow consumption just a little bit more.

But it's not just China.

Despite the Reserve Bank of India having raised rates eight times since March 2010, they may have to hit the markets with a bold 0.5 percent rate hike in early May to combat inflation of nearly 9 percent.

In the euro zone, inflation is at fresh 29-month highs at an annual 2.7 percent with a record increase in March.

And in Britain, although March showed a fall in CPI inflation to 4 percent, economists still think it will rise over the next few months, maybe even hitting the 5 percent mark within the year.

(The good news is that core inflation has dropped, so underlying price pressures may be nicely contained all things considered).

In the US, while prices still are in an upward trend, analysts think subdued labor costs will keep a lid on inflation. There the issue instead seems to be centered around what the Federal Reserve should do once its $600 billion asset buying scheme comes to an end in June, and how the market will react to having stimulus withdrawn.

Do keep your eyes on the currency markets in particular.

On one hand we have become immune to European debt worries, but with its latest downgrade, Moody's now has Ireland below levels of both Fitch and Standard & Poor's and that is putting a bit of pressure on an otherwise resilient euro.

More worrying, short-dated Greek bond yields have been spiking to record highs despite the Greek authorities denying that an imminent debt restructuring was on the cards.

This has also been adding to some nervous euro trade. But, for now, the currency trend is still intact.

Currency analysts told me they think the euro will continue to be supported against sterling on expectations that the European Central Bank will hike rates before the Bank of England.

And the US Fed doesn't seem to be in a hurry to hike rates either, helping the weak dollar story stay intact.