It is inflation, not deflation, that we need to worry about

America has deflation: Britain doesn’t. Really. Not at all. In fact, rude as it may be to point it out, prices are soaring here. Britain has the highest inflation in any European country. Sure, the RPI index is in negative territory – as you’d expect given the collapse in interest rates. But the average British shopper is still being fleeced at the tills, and the consumer price index (CPI) was 2.9 percent in March – something like the third worst reading (above the MPC target of 2.0 percent) since the Bank of England’s so-called independence. It was only a couple of months ago that the Bank was forecasting 2.69 percent inflation for Q1 2009. It has turned out to be 3.0 percent. Inflation is overshooting expectations.

There is much political mischief to be caused in talking up the threat of deflation.