Woah. We’re used to Mervyn King’s monthly letter to explain the latest inflationary
overshoot by now — but this, this is still quite something. CPI inflation rose to 5.2 per cent in September, a 0.7 percentage point increase on the month before and equal to the previous
record level set in September 2008. RPI inflation, meanwhile, stood at 5.6 per cent, its highest since June 1991. And so the cost of living is shooting up, while growth and wages stall. It’s a
particularly poisonous brew.
Yet here’s the thing: King and George Osborne are warning that deflation is still the problem. Their position is that once temporary factors — such as oil prices and inflationary taxes — are removed from the equation, then prices will come rattling down. Quantitative easing, they say, will stave off this slump when it comes.
It would be easier to have sympathy for this argument were it not for two facts.
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