The ongoing Russian offensive against Ukraine coupled with the US inflation hitting a 40-year high fuelled selling in the Asian markets.

Asian markets have mostly dropped as traders resumed their Ukraine-fuelled selling after the previous day’s bounce, with data showing US inflation at a 40-year high adding pressure on the Federal Reserve to ramp up interest rates.

Bets on a more aggressive approach by the Fed to rein in runaway prices added to nervousness on trading floors on Friday, while the failure of high-level talks between Moscow and Kiev to de-escalate the war also helped torpedo a brief rebound in equities.

However, while oil rose it was well off the 14-year highs touched at the start of the week as governments embark on a diplomatic push to replace the output erased by strict sanctions and an embargo on Russian exports.

While the war in eastern Europe continues to rage, investor focus turned to the release Thursday of figures showing US inflation hit 7.9 percent in February, the highest since January 1982.

The reading comes just ahead of the Fed’s next policy meeting, where it is expected to announce the first of what could be up to seven interest rate hikes this year.

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While a phase of tightening is certain, speculation has been rife about how many and how steep the rises will be.

Rising food, fuel, shelter prices 

The war has given officials an extra headache as the surge in oil markets will add upward pressure to consumer prices, though the bank must tread a fine line between fighting inflation and trying to prevent a recession.

“The headline print was a 40-year high, reflecting higher gasoline, food and shelter costs. And now with energy prices on the rise following Russia’s invasion of Ukraine and sanctions, expectations are for inflation to rise even more,” said National Australia Bank’s Rodrigo Catril.

The “net takeaway is that US inflationary pressures are proving to be more persistent and expansive, increasing the pressure on the Fed to lift the funds rate and cool the economy”.

US Treasury Secretary Janet Yellen admitted rising prices were a problem and annual inflation would probably “remain very uncomfortably high”.

Also on Thursday the European Central Bank hiked its inflation forecast for the year and slashed its economic growth outlook while taking a more hawkish stance on policy.

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All three US indexes ended in the red, having enjoyed a strong burst higher the day before and Asia followed suit after its own advance on Thursday, though early losses were pared or reversed in some places.

Tokyo lost more than two percent, while Hong Kong slipped 1.8 percent with Sydney, Seoul, Taipei, Manila, Jakarta, Mumbai, Kuala Lumpur and Wellington also in the red.

But Shanghai, Bangkok and Singapore squeezed out gains, while London, Paris and Frankfurt opened higher.