tonsumer-price ination in America jumps up to 4.2% As America's Economy bounces back from pandemic, aided by trillions of dollars of scal stimulus, the main question on investors mind is if_;_a_t_1d_1_a_r_l_1n_ ination will take off. The Federal Reserve has vowed to tolerate a period of abovetarget price rises so that the economy can get back on its feet: Jerome Powell. its chairman, has said it is \"not even thinking about dunking\" about raising interest rates. Yet with many asset prices underpinned by rockbottom rates. investors have been jumpy. fretting that high ination could force the central bank's hand. Then came a big ination surprise. Figures published on May 12th showed that Ameri ca's consumerprice index rose by 4.2% yearonyear in April. a rate not seen since 2008, and considerably higher than the 3.6% that had been expected by forecasters. The @500. America's main stock market index. fell by 2% that day. By far the biggest factor behind the acceleration relates to the past, rather than the price pressures of today. as last year's oilprice falls depressed the base used to calculate the annual rate. Yet even the monthly increase, stripped ofmore volatile food and energy prices. was 0.9%. the strongest since the 1930s. Data for a single month cannot tell you whether runaway ination is around the corner. But the release says something about the realities of economic reopening. Consumer demand in tile world's largest economy is roaring back. Stimulus cheques worth up to $1.400 were doled out t_u many Americans earlier in the year. Now a successful vaccination campaign is allowing them to get out and spend and restrictions to loosen. According to a tracker compiled by IPMorgan Chase. a bank, creditcard spending rose from a tenth below its purepandemic trend in the six months to March to only just below it by May. The speed and nature of the postlockdown Wseems to have caught many rms oEi guard. Not since the mid1970s have companies been so likely to report delays in supplier deliveries. according to research published in March by Goldman Sachs. a bank. American retailers' inventories. relative to revenues. have plunged to alltime lows. suggesting that shops are running out of things to sell. Many rms. especially smaller ones. had ordered insufficient supplies and are now frantically catching up. [By contrast, the inventories of large listed rms have not declined. either because they were better able to forecast the coming spending binge, or because their supply chains are more diversied.) Yet surges in demand cannot immediately be fullled. Take imported supplies. for instance. Even at the best of times extra demand for international deliveries takes a while to sate; a ship can take a few weeks to sail from China to America. The added complication in 2021 is that rms must also contend with shortages of containers in some ports. Some were stuck in the wrong place during 1the rst wave oflockdowns. Moreover, workers cannot be hired overnight. Firms are struggling to recruit enough staff to ll open positionsperhaps a big reason why the jobs report for April, published on May 7th, showed that America had added just 266,000 jobs, well below the 1m or so that many economists had expected. The number ofunlled positions is running at an alltime high. Take the surge in demand and strained supply together, and you get to higher prices. Used cars and trucks are a good example. Their prices rose by a staggering 10% in April, contributing to the headline-ination surprise. With people nervous of ying and public transport, more may want to get behind the wheel instead to see relatives in other parts of the country, or to get to work. But a global shortage of computer chips has also constrained the supply of new vehicles. Assured of sustained demand, other companies may also begin to pass on higher costs to customers. The cost of shipping items From China to America is now three times as expensive as it was before the pandemic, and input prices have picked up in the spring. What, ifanything, can these pressures tell you about ination to come? In order for it to stay high, such price rises will need to keep repeating, pushing up wages in turn. But the present phase could reasonably be regarded as temporary, as suppliers adjust to shifting consumer tastes. Even as economies locked down in 2020, for instance, rms quickly found new ways to source material and bottlenecks eased. The current spike would then prove transitory. Yet as the recovery proceeds, other surprises will come. The combination of a generous Treasury, a tolerant Fed and a reopening economy puts America in uncharted territory. Brace yourself for more ination scares in the coming months