AS we hopefully begin to get the better of one virus, another one could be lurking dangerously in the undergrowth ready to pounce: inflation.

In some quarters, fears are growing that the measures governments are using to stimulate their economies to counter Covid-19, are slowly, or not so slowly in some cases, beginning to supercharge the cost of living.

Yesterday, alarm bells began to ring louder after the US inflation rate for May hit 5 per cent. In April, Americans saw the cost of living make its biggest jump since 2008 to 4.2%. The Federal Reserve’s target is just 2%.

But it is not just the US – inflation is taking off across the globe as countries rein back on Covid restrictions and demand increases. Earlier this week, figures for May showed factory gate prices in China, the world’s biggest goods exporter, rose at their fastest annual pace in over 12 years, 9%, due to surging commodity costs.

In Britain, some prices are starting to increase. Petrol, now at a two-year high, is expected to rise further as oil prices recover with demand rising from their pandemic lows. The current rate of UK inflation is 1.5%, up sharply from 0.7% the previous month, but it is expected to rise above the target of 2% in the next week’s update.

Last month across the English Channel, prices rose sharply in the eurozone to 2%, the highest level since October 2018, and just above the European Central Bank’s target.

As ever, the problem for Frankfurt is calibrating a common monetary policy across 27 member states as some, like Germany, are set to recover faster than others, like Italy and Spain.

There are two schools of thought on the cost of living.

The optimistic one is that while inflation might rise a bit in the coming months, it will be temporary, and, because there is a deal of spare capacity in the economy, costs will settle down to normal levels next year. This is the sanguine view of the Bank of England and the US Federal Reserve.

The pessimistic one is that the spare capacity is an illusion and that, as British consumers let rip with estimated pent-up savings of £200 billion – helped by low interest rates and the splurge of Quantitative Easing – demand will quickly begin to outstrip supply and, consequently, inflation will zip upwards. Counter-measures will include higher interest rates, which would push up mortgage bills for millions of homeowners.

As always for Treasury chiefs and central bankers the key is finding the Goldilocks solution – if they are forced to tighten policy to reduce inflationary heat and do it too quickly, then the recovery from the pandemic could be killed off; but if they don’t cool the temperature or delay in doing so, then price rises could take off and return us to those unhappy days of the 1970s.

Already in certain sectors, wage inflation is picking up. This week, the recruitment firm ManpowerGroup UK, in its quarterly survey of almost 1,800 firms, said that the outlook on jobs across the UK had seen its sharpest rise, quarter on quarter, since 2002. The prediction for the third quarter of 2021 was plus 8%, a rise of 13 points on April to June.

It also pointed out how three-quarters of UK firms were now struggling with skill shortages hindered by a combination of the pandemic and Brexit rules on hiring foreign staff. Consequently, pay is on an upward curve.

The logistics sector, which includes lorry drivers, has seen hikes of 20% while wages in hospitality have increased by 10%. Pubs, hotels and restaurants had “never experienced anything like this sudden snapback in hiring,” said ManpowerGroup UK.

As the economy reopens, certain sectors are beginning to soar. The Purchasing Managers Index survey recorded a score for the construction industry of 64.2 in May, beating 61.6 in the previous month: anything above 50 is seen as a sector in growth.

Manufacturing hit a record high of 65.6 in May while services reached 62.9, up from 61 in April; the fastest growth in output for 24 years. Following the lockdown, retail sales have begun to climb again; up 10% in May compared with the same month in 2019.

“Pent-up demand for the instore shopping experience, as well as the first signs of summer weather, helped retail to the strongest sales growth of the pandemic,” explained the British Retail Consortium. Barclaycard said consumer spending in May was at its highest since the start of the pandemic, up 7.6% compared with the same month in pre-Covid 2019.

Economists believe the “spend, spend, spend” mindset could lead to the economy growing by 6.5% in Q2 and by 8% overall in 2021; which would be the fastest rate since WW2.

Indeed, Andy Haldane, the Bank of England’s outgoing top economist, described Britain’s recovery as going “gangbusters” and suggested that those businesses on pause, needed to reopen with furloughed or unemployed workers returning to jobs to keep up the momentum.

But there was a big but. The analyst also warned, as growth recovered at a “rate of knots”, the danger was inflation could begin to take off.

“This,” he noted coldly, “is the most dangerous moment for monetary policy since inflation-targeting was first introduced into the UK in 1992 after the European Exchange Rate Mechanism debacle.” Black Wednesday not only saw Britain crash out of the ERM but also experience interest rates hitting an eye-watering 15% at one point. Mr Haldane made clear that the risk to the economy could not be left to linger; the “inflation genie”, he warned, had, for all our sakes, to be stopped from once again escaping its bottle.