Mervyn King, Baron King of Lothbury to you, used to despair of a small band of gobby, quite influential economists he dubbed “inflation nutters”.
While Governor of the Bank of England from 2003 to 2013 – a time, in retrospect of extraordinary stability that quite lacked for drama – King identified the folk who worried about inflation to the exclusion of everything else.
If unemployment looked set to explode, they moaned about inflation. If a tsunami of debt threatened to overwhelm public finances, they moaned about inflation.
If an actual tsunami arrived just off the coast of Essex…you get the picture.
The Bank of England is supposed to manage monetary policy so that inflation hits 2%. That’s deemed to be healthy, a sign that folk are confident enough to spend, but that price rises aren’t running out of check.
Lord Merv used to miss this target all the time, overshooting, and having to explain himself to the Chancellor. And the nutters.
Did this overshooting lead to the collapse of the economy? No it helped save it, admittedly undermining rich people’s savings on the way.
(If you were wondering which societal group the nutters represented you can now stop. Inflation hurts the poor too, of course, they just don’t retain a PR agency to lobby for them on the issue. Short-sightedly.)
Lately the problem has been undershooting the target. Inflation remains below 1%, hence Bank efforts to pump money into the economy to get inflation higher.
It’s odd then, perhaps, that the nutters are back. And in some interesting guises.
No less than Warren Buffett says his Berkshire Hathaway conglomerate is seeing “very substantial inflation”, something in fairness that he thought was “interesting” rather than necessarily catastrophic.
Inflation in the US did spike at 2.6% in March, suggesting it could become a problem there long before it is here.
Buffett isn’t alone. On Sky News on Tuesday, Sir Martin Sorrell fretted about “overheating” – the economy suddenly taking off.
For both gurus, government spending is somewhat of a concern – the feeling that the state can’t simply invent money and splash it about without consequence runs deep (it’s a reasonable fear, though perhaps a premature worry at this point).
Sensible economists – non nutters – agree that inflation is to be watched, but think raising rates to curtail it now would simply set back the recovery.
The Bank of England is likely to say exactly that – in Bank jargon – at its Monetary Policy Committee meeting tomorrow (Thursday).
Capital Economics thinks inflation will rise to 1.5% soon and to above 2% by December. It doubts it will remain there for long, so markets are wrong to assume rate rises any time soon.
One reason why inflation might appear to jump is because of rising petrol prices.
But they collapsed under lockdown since no one was driving. Any rise at the pump now people are again on the road makes inflation look high, but it really just means folk are filling their cars up to go and do productive things, like make money or spend it.
Paul Dales at Capital Economics says: “We think that the conditions for higher inflation will be in place, namely a strong economic recovery at the same time that both monetary and fiscal policy remain ultra-loose.
“But we don’t think that will happen for a couple of years. And even then, we’re talking about an inflation rate of 2-3% rather than anything bigger as the disinflation forces of the past three decades (globalisation, declining labour bargaining power and technological innovation) haven’t disappeared.”
If inflation does become a problem, governments are better practiced at controlling it.
More Dales: “When it comes down to it, the key is the attitude of policymakers to inflation. If they want to keep it low, they can do that by raising interest rates and/or unwinding QE.
“But if they see some merit in having inflation a bit higher than before (to lower real interest rates and boost the economy, to inflate away public debt etc.), then inflation will probably be a bit higher.
“You could argue that the Fed moving to an average inflation target is the first step towards policymakers becoming more tolerant of a bit more inflation.”
What of the nutters? A view here from a senior City figure who didn’t want to be named, presumably because so many of his colleagues qualify.
“Most of the warnings on inflation come from people who learned their economics in the 1980s and have been wrong ever since.
“Price/ wage spirals happened when unionised workers were a third of the UK labour force - and local markets had pricing power. The steady erosion of worker rights and Amazon have made this a distant memory - apart from amongst some grey-haired economists.
“There is also the inconvenient truth that if inflation does get too hot, governments and central banks aren’t short of tools to take the heat out of the economy.
“This automatic dampener gives confidence to Janet Yellen and Rishi Sunak that they are on the right side of history.”
If the nutters are again proved wrong on all this, they’ll shut up, right?
Wouldn’t bet on it.