Around the world, government and central banks are thinking less about the possibility of deflation and increasing turning their attention to inflation.

But how much do we know about the causes of it, and why are some governments getting it all wrong?

Take the British Chancellor of the Exchequer (Finance Minister), for example. Alistair Darling recently said, “Pay awards in both the public and private sectors have got to be consistent with our inflation target of two per cent.”

It was like going backwards in time to the 1970s when a Labour government literally brought Britain to its knees by exercising almost total control over the economy.

Darling’s reasoning is that if pay rises were higher, prices would go up and consume the value of higher pay.

For a correct analysis of inflation, we have to turn to a former Conservative Health Minister, Enoch Powell, who knew a thing or two about economics. He said, “Of course when there is inflation, prices rise, including wages, which are the price of labour. That is what inflation means; the statement is a mere definition. But it is as absurd to say that inflation occurs because prices rise as to say that it rains because the ground gets wet. You cannot have rainfall without the ground becoming wet; the one is inseparable from the other; but we do not mistake the result for the cause.”

If that isn’t the most concise and accurate explanation, it must come very close.

His alternative to Labour’s prices and incomes policy approach would be to take money out of circulation by the government spending less or the Bank raising interest rates, or a combination of both.

In Britain, growth is at present around 2pc, and is likely to fall to about 1.3pc in the coming year. Inflation, according to government approved figures is about 3.5 per cent. That gives a total of 4.8pc.

Compare that to a rise in money supply (M4) of 12pc and there you have it.

Inflation is caused by having too much money chasing too few goods. And it’s the government that injects that money into circulation, partly by excessive borrowing.

The UK will now have to take money from the economy going into a possible recession — the worst of all possible worlds.