Unemployment is high. Bank lending is low. We've apparently got spare capacity coming out of our ears.
Yet for Britons at least, inflation just isn't going away.
In March, the consumer prices index (CPI) and every other measure of inflation rose once again. CPI hit an annual growth rate of 3.4% from 3% in February - economists had been forecasting 3.2%. The retail prices index - which includes housing costs - hit 4.4%, and RPIX (which excludes mortgage interest bills and used to be the Bank of England's target measure) jumped by 4.8% year-on-year, from 4.2% in February.
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However you look at it, those are big numbers. The CPI target is 2%. Bank Governor Mervyn King is well into letter-writing territory. And even if you look at 'core' inflation, which excludes fuel and food prices, it still grew by more than expected, rising by 3% year-on-year.
The one consolation for the central bank is that the last time inflation was this high was back in autumn 2008, when CPI hit 5.2% in September (it hit 3.5% in January 2010, but the other measures were far tamer than they are now). But that was the peak. As the economy plunged into recession, inflation tumbled, and CPI was down to 1.1% by September 2009.
But of course, that's something of a double-edged sword. Because a nose-dive back into recession would be a pretty painful way to get the inflation figures down. Yet if the recovery is genuine, and inflation shows no sign of falling back, then the Bank is taking a big risk in keeping rates this low. If workers start to worry about the rising cost of living, it'll get tougher to keep pay deals down, particularly if companies are genuinely seeing better times.
And savers are being wiped out. Real interest rates (the inflation rate minus the base rate) now stand at a miserable negative 2.9%, and that's assuming you take CPI, the most forgiving inflation measure. No wonder people are piling into more speculative investments they'd rather take an uncertain risk than the guaranteed loss you'll get with most savings accounts.
So what happens next? It's a tough call, but one of the most important when it comes to your investments. So we've just pulled in some of the smartest pundits we know on both sides of the inflation / deflation debate for a roundtable discussion. The ensuing - rather heated - argument will be our cover story in the next issue of MoneyWeek, out on Friday. If you're not yet a subscriber, subscribe to MoneyWeek magazine.
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Beating inflation takes more luck than skill – but are we about to get lucky?Opinion The US Federal Reserve managed to beat inflation in the 1980s. But much of that was down to pure luck. Thankfully, says Merryn Somerset Webb, the Bank of England may be about to get lucky.
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Rishi Sunak can’t fix all our problems – so why try?Opinion Rishi Sunak’s Spring Statement is an attempt to plaster over problems the chancellor can’t fix. So should he even bother trying, asks Merryn Somerset Webb?
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Young people are becoming a scarce resource – we should value them more highlyOpinion In the last two years adults have been bizarrely unkind to children and young people. That doesn’t bode well for the future, says Merryn Somerset Webb.
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Ask for a pay rise – everyone else isOpinion As inflation bites and the labour market remains tight, many of the nation's employees are asking for a pay rise. Merryn Somerset Webb explains why you should do that too.
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Why central banks should stick to controlling inflationOpinion The world’s central bankers are stepping out of their traditional roles and becoming much more political. That’s a mistake, says Merryn Somerset Webb.
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How St Ives became St Tropez as the recovery drives prices sky highOpinion Merryn Somerset Webb finds herself at the epicentre of Britain’s V-shaped recovery as pent-up demand flows straight into Cornwall’s restaurants and beaches.
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The real problem of Universal Basic Income (UBI)Merryn's Blog April employment numbers showed 75 per cent fewer people in the US returned to employment compared to expectations. Merryn Somerset-Webb explains how excessive government support is causing a shortage of labour.
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Why an ageing population is not necessarily the disaster many people think it isOpinion We’ve got used to the idea that an ageing population is a bad thing. But that’s not necessarily true, says Merryn Somerset Webb.
