Still waiting for deflation

Today's inflation numbers were bad, although you wouldn't know it listening to any journalists.

The headline consumer price index increased to 3.2 percent, up from 3 percent in January. So did the retail price index (excluding housing and indirect taxes). This second indicator is now running at 3.5 percent.

The retail price index did fall to to zero, essentially for two reasons; the Bank of England cut interest rates to zero, and therefore pushed down mortgage repayments; while the government cut VAT. Both affect the RPI.

Price sub-indices confirm that inflationary pressures are actually increasing. Here are two such measures for food and household maintenance. The former increased by over 12 percent over the last year; the latter increased by over 7 percent. Both are ticking up sharply.

So where is this deflation that the Bank of England used to justify a zero interest rate policy? It is lurking in the over-excited imaginations of the MPC, but we can't see it down at the supermarket.

It is hard to exaggerate the mess we are in right now. Every key macroeconomic indicator is heading the wrong way; inflation is up, the economy is in recession; and unemployment is rising. The Bank of England hasn't met its inflation target for years.

Likewise, every macroeconomic policy instrument is being abused; zero interest rates; a massive fiscal deficit, and that ridiculous VAT cut. To add to this lunacy, the Bank of England has started to print money.

We are buried so deep in trouble that we can no longer see daylight.