Are we faced with inflation or deflation? It seems to depend on which analyst you read and on which day of the week. Complaints about a new inflation due to, say, government money creation or budget deficits come hot on the heels of moans that deflation is still a menace. Looking at actual numbers adds to the confusion. On the UK official consumer price index, year-on-year inflation was still 2.3 per cent this April, slightly above the government's 2 per cent target. On the traditional and more comprehensive retail prices index, it was -1.2 per cent.

Can we just say, then, that as there are both inflationary and deflationary fears, policy is on the right lines and we are enjoying rough price stability? Unfortunately we cannot. For great uncertainty about the direction and size of price movements is itself a danger to economic stability.

Not enough attention has been paid to the fact that after their recent plunge, oil and commodity prices are creeping up again. It was the effect of rising prices in these areas in generating inflation that accounts for the slowness of some central banks to shift last year from restrictive to expansionary policies. A renewed upsurge in primary product prices would make life more difficult for central banks' monetary strategy. But this is not the most important danger. The real worry is that shortages of energy and basic commodities may be imposing real speed limits on world growth well before anything like full employment is regained.