And thus we arrive at the most important (and inevitable) of all deflationary trends: demographic change. Retired people tend to consume less than their working age compatriots – thus putting downward pressure on demand as the population ages.
Excessive increases in the money supply have severe and far-reaching economic consequences. Yet neither ministers nor the electorate have any say over this crucial area.
A critical first step would be a reboot and reorganisation of the Monetary Policy Committee, with greater scrutiny of appointees, with shorter terms.
Ministers need to drive up public-sector productivity via something-for-something pay deals, and support a supply-side revolution through non-inflationary tax cuts.
Neither finance ministers nor central bankers should mislead themselves or the public with the promise implied by talk of when interest rates come down.
Targeted help can be provided to those in need, as was the case during the energy crisis. That’s what we should stick to – not a return to bureaucratic mechanisms.
I suggest an “all-monetarist shortlist” for appointments to the Monetary Policy Committee in the near future, to address the collective delusions that blessed us with this current bout of inflation.
In terms of fiscal policy, if the wider economic picture does not allow the debt to GDP ratio to fall, then the focus of the markets will be on the need to keep the public finances in shape.
On some issues, he got it wrong. On other issues, he got it right but is misrepresented by some of his cheerleaders. And on other issues, he was right in the context of the time but circumstances have changed.
Recent problems with Silicon Valley Bank and Credit Suisse are examples of the stress that interest rate rises are putting on the financial system. But relaxing monetary policy now risks entrenching inflation.
It exercises its independence selectively, and losses can generate a huge bill for taxpayers with no oversight from ministers.
I cannot think of a time when market confidence was plummeting in both the Chancellor or the Governor of the Bank of England at the same time. If neither is up to the job, both should go.
The Prime Minister and Chancellor will have been hoping for a higher rate rise today. Trussonomics requires a tighter monetary policy.
Of course one must not be complacent. I have worked long enough in the markets to know that when they smell blood there can be trouble.
It has forgotten that rising prices are a disease of money, and has slid back to a world of “sticky” prices.