Commentary: He's the Governor, so follow his thrifty example

Message from Mervyn King, Governor of the Bank of England: "I feel your pain. I have turned down a six-figure pay rise, and my salary is only going up by 2.5 per cent. Meanwhile, prices in the shops are going up by something either side of four per cent, depending on which index you believe, and are now set to climb even more steeply. I shall have to economise. PS: So will you."

By the index that Gordon Brown asked us to believe in, inflation has jumped in the last month from 3.3 to 3.8 per cent - and that is before the stiff increases in household bills for gas and electricity, booked for the autumn. When they kick in, they will boot this index of inflation up to five per cent and beyond. A nightmare for King, who has been set the task (by Brown, when he was Chancellor) to bring it out at two per cent. So inflation is back where it was in the dismal days of the early Nineties - to be exact, in June 1992. Interest rates were in double figures, the economy had gone into recession, house prices had turned turtle, but inflation, as we can now see, was on its way down. In the months ahead, the comparisons will begin to look worse.

How blithely Nigel Lawson, who was Chancellor when inflation started rising, had declared that this was a blip. It was more of a blister. It stayed around, it got worse, and it built itself, naturally enough, into people's expectations. If this was what prices were doing, wages would need to keep up. So they found their way into companies' costs, and so back into prices. No wonder that these expectations rank high on King's list of worries.

We had seen it all happen before. Inflation in the mid-Seventies had peaked at 26.9 per cent, destroying the currency's value and putting savings to the torch. No one who had lived through this shock, and through the aftershock 15 years later, could ever again trust in Governors and Chancellors to keep inflation under control. They claimed this for themselves until lately, but the credit should really have gone to the clever Chinese, who were making things more and more cheaply. Now they have stopped, and inflation is back.

So where does it go from here? Upwards, at least until the end of the year. After that it should begin to look better, because the index measures prices against where they were a year ago, and some of the steepest increases will begin to drop out of the comparisons. On these hopeful assumptions - and if, for instance, the price of oil climbs no higher - the index should be nearing King's two per cent target before the decade is out.

Experience, though, ought to warn us against blithe forecasts like these. Once inflation gets into the system, it is apt to entrench itself, and getting it out can be a long and painful process. King keeps on telling us - he was saying so only this week - that we must expect our standards of living to fall. If we expect nothing better, that, at least, will be one worry the less for him. He wants us to bite on the bullet, and no one can say that he has not set an example.