Fresh COVID outbreaks in Shanghai and Beijing have also seen authorities reimpose containment measures soon after lifting them, leading to fears about the world's number two economy.

The possibility of more restrictions in China's biggest cities also weighed on oil prices, with concerns about a possible US recession and the stronger dollar adding to downward pressure on the black gold.

Investors were left surprised Friday when data showed US inflation jumped 8.6 percent in May, the fastest pace since December 1981, as the Ukraine war and China's lockdowns pushed energy and food prices.

The reading has led to fervent speculation that the Fed will now be contemplating a 75-basis-point lift in interest rates at some point, though it is still expected to stick to a flagged half-point hike when it meets this week.

With the central bank forced to be more aggressive, there is a concern that the US economy could be sent into recession next year.

"For the last few weeks, there has been a cautious calm in markets -- rates not pricing anything unforeseen, and equities able to make small gains," said SPI Asset Management's Stephen Innes.

"But the strength of [US consumer prices] completely upended that apple cart.

"The market is now thinking much more about the Fed driving rates sharply higher to get on top of inflation and then having to cut back as growth drops."

And Bank of Singapore chief economist Mansoor Mohi-uddin added that officials would likely lift borrowing costs 50 basis points for the next four meetings and eventually push the overall rate to 4.0 percent in 2023. 

Wall Street's three main indexes tanked, with the Nasdaq taking the heaviest blow as tech firms -- which are susceptible to higher rates -- were battered, while European markets were also hammered.

Asia followed suit, with Hong Kong, Tokyo, Seoul, Taipei and Wellington off more than two percent, while Shanghai, Singapore, Manila and Jakarta fared almost as badly.

Goldman Sachs analysts said in a note: "At some point financial conditions will tighten enough and/or growth will weaken enough such that the Fed can pause from hiking.

"But we still seem far from that point, which suggests upside risks to bond yields, ongoing pressure on risky assets, and likely broad US dollar strength for now."

The dollar continued to push higher on expectations for a sharp increase in US rates, hitting multi-year highs against its peers and flirting with a 24-year peak versus the yen.

"The yen is, sooner rather than later, going to come under renewed selling pressure" if the Bank of Japan does not change its loose monetary policy, Rob Carnell at ING Groep told Bloomberg Television.

"I think it's a question of when rather than if with them."

Oil prices sank, extending Friday's retreat, on demand concerns China sticks to an economically damaging zero-COVID policy to fight a fresh outbreak of the disease.

Parts of Shanghai were put back into lockdown and officials carried out mass testing on millions of people, just weeks after lifting strict measures in the country's biggest city.