Inflation top issue facing financial markets

The possibility of increased inflation has replaced credit risk as the top issue facing the global financial markets, said Larry Kantor, managing director and head of research at Barclays Capital of London. The global economy is experiencing price increases that are “truly remarkable,” Mr. Kantor said at a press event in New York. As a result, Barclays upped its second-quarter global inflation estimate to 5%, from the 4% that was anticipated. A major contributor to the increased rate is the spike in commodities prices, which will “have more impact on the global economy than many are anticipating,” Mr. Kantor said. Emerging markets, particularly in Asia, are facing the worst of the inflation surge, he said. Many emerging market countries have account deficits and will be hit harder by higher food and energy prices than developing market countries. “The global economic picture has changed,” Mr. Kantor said. “It is not as … bullish a picture for emerging markets [as it used to be].” His remarks came one day after the Federal Reserve decided to hold the federal funds rate at 2%, following seven consecutive rate cuts. Mr. Kantor predicted that the Fed will raise rates back to 2.5% by the end of the year.