There’s a lot to look at in markets at the moment, but in the last week of February, the central concern seemed to be interest rates, with the benchmark US 10-year Treasury touching a one-year high of 1.61 per cent on Thursday.

Cue a frantic sell-off in theoretically interest-rate-sensitive growth stocks, perhaps best encapsulated by the ARK Invest family of ETFs, as investors scrambled to rotate their portfolios as fears of inflation swept through the markets. By Friday, however, it was back to normal. And so it was in early trading on Monday.

The market’s current schizophrenia towards inflation and rates is understandable. Judging whether prices will become a problem, or a tailwind, for the US economy is in our view impossible. Covid has created a lot of idiosyncratic effects on both the supply and demand side of the economy that will create natural distortions in price data. So figuring out where the steady-state-rate of inflation will settle post-recovery feels like, to be polite, a mug’s game.

Yet Monday’s PMI readings from ISM do suggest that, at the moment, if pricing pressure is going to persist it will be due to the supply side.

In case you missed the headlines, the US manufacturing purchasing managers’ index came in at 60.8 per cent, up 2.1 percentage points from January’s reading. It is, by all accounts, a blockbuster number — the highest reading since February 2018 (the Trump tax-cut era, as you might recall).

But look closely at the responses, and you’ll see that supply chains seem to be the central concern for the businesses surveyed by ISM.

Here’s a selection of the best ones, with the relevant industry added at the end (if you’re wondering what the bracketed part means):

You get the picture: demand is robust, but producing the goods for customers is proving problematic. This has knock on-effects on costs. Zero in on the prices — the cost of raw goods for products — reading in the survey and you’ll see it came in at a whopping 86 per cent. According to Alphaville pals Bespoke Research Group, the consumer price index reading when this figure is above 85 has been at an average of 3.2 per cent since 1990. The last CPI reading? 0.3 per cent.

We already knew that the rise in oil prices and pent-up demand for services was likely to trigger a rise in CPI inflation in the coming months. If producers manage to pass on these higher costs to consumers, then the rise will be even stronger. Which they may well do as demand soars as the US economy begins to reopen. Deutsche economist Jim Reid wrote in his morning note that, given the potential figures (DB reckon nominal GDP growth could be close to 10 per cent in the fourth quarter), he thinks volatility in asset markets will remain high due to the inherent uncertainty over inflation.

While we have no idea where inflation will settle, that seems as good a bet as any in this economic environment.