U.S. inflation has hit its highest rate since 2008 as the world’s largest economy recovers strongly from the pandemic.

The consumer prices index (CPI) jumped at a rate of 5% in May, up from 4.2% in April and the highest since August 2008, according to the US Bureau of Labor Statistics. 

Lingering inflation concerns have rattled markets, with investors fearing that pent-up demand and supply chain bottlenecks would fuel rising prices, meaning that the Federal Reserve would slow its stimulus programmes.

However, Wall Street rallied on the news, with the S&P 500 hitting a new high “as traders anticipated that the inflationary surge would be temporary, allowing the Fed to put off tapering a bond-buying policy that has pumped money into global markets,” reported The Guardian.

“Markets finally seem comfortable with the idea that inflation in the US will be transitory,” said Mimi Rushton, co-head of global FX sales at Barclays.

But, the latest inflation rate “has to be getting the Fed’s attention”, noted Cliff Hodge, chief investment officer for Cornerstone Wealth. 

“It will still likely be chalked up to transitory base effects, but the CPI print alongside recent releases on higher wages will only turn up the volume on taper talk.” 

The Fed has argued for months that jumps in consumer prices are a temporary effect of industries reopening after pandemic lockdowns. Most of the Federal Reserve’s policymakers expect rates will remain near zero far into 2023.