Almost three years ago, at the World Economic Forum’s “Summer Davos”, in Tianjin, I heard a Republican politician say that the US would be in hyperinflation within two years. I was stunned. Yet a large number of people believe that hyperinflation is coming. If the US is in trouble, so, surely, is the UK. Is there anything in such predictions? The answer is: possibly, in the very long run. At present, however, the risk is that inflation may be too low, not too high. Paradoxically, that increases inflation risk in the long run.

What drives an inflationary process? The late Milton Friedman gave the classic answer: “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.” But this does not explain why the quantity of money should grow more rapidly than output. The answer of those now terrified of inflation is twofold. First, central banks are “printing money” through “quantitative easing”, which will ultimately produce an explosive rise in broad money. Second, prospective levels of public debt will ultimately encourage governments to default, via inflation.

Let us look at this big issue for the UK, which has rising public debt and relatively high recent inflation.