Inflation Alarm Bells Ringing

[Purveyor]

LONDON, Feb 24 (Reuters) - Inflation alarm bells are ringing in financial markets as soaring energy and commodity prices and signs that companies are regaining pricing power spook investors already nervous about an economic downturn.

Price indices from major world economies this week will be examined closely as markets grow uneasy about heavy doses of monetary easing being introduced in tandem with mounting inflation pressures from soaring raw material and food prices.

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With investors on tenterhooks, speeches by Federal Reserve chairman Ben Bernanke, European Central Bank President Jean-Claude Trichet and other policymakers from the United States, Switzerland and the euro zone will be closely watched this week for any signs that central banks might harden their anti-inflation stance.

The inflation scare has forced traders to almost drop expectations for euro zone interest rate cuts in the first half of 2008. They are also scaling back how far the Fed can slash rates. Demand for inflation-proof government bonds is surging.

And the combination of economic and inflation concerns are preventing world stocks, measured by MSCI, from benefitting from the rate cuts and fiscal plans made so far.

"We've seen aggressive moves from the Fed in an effort to avert a recession which may be already in place. They are trying to attenuate one problem, but that is opening the door for worrying inflation pressures later in the year," said Matthew Cairns, senior economist at Moody's research arm Economy.com.

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