I warned that Central Banks pumping cash into markets was a short term fix, not a solution to the problems. Yesterday markets fell again, as people realised they still do not know when Central Banks will start cutting interest rates, and still do not know enough about how much the commercial banks have lost so far in the collapse of dodgy loans.

UK inflation fell to 1.9% on the CPI last month, back below target. It remains too high on the RPI measure, the one?? used in inflation linked bonds and most wage negotiations. There are obvious signs of slowing activity in Italy and France. In the US Wal Mart has warned that non food sales are slow, implying people are struggling to make the wages stretch.

Central Banks need to keep in mind the delays between raising interest rates and the impact that has on the real economy. Commentators who were writing a few days ago that this is just a financial adjustment need to think again. It can only bring inflation right down by having an impact on economies as a whole, and that is what it is going to do.

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