Larry Elliott is on form in the Guardian this morning, saying:

Last week, the Bank said it expected inflation to peak at 5% later this year and growth to come to a standstill over the coming 12 months. King said there was bound to be the possibility of a quarter or two of negative growth. Yet the August 2007 Inflation Report shows that the prospect of 5% inflation or negative growth were off the scale. .. It is fair to say that in August 2007 the economy was growing at an annual rate of 3% plus and inflation was 1.8%. It is also fair to say that the credit crunch had yet to erupt and the oil price was $70 a barrel. Having said that, the Bank has still got it wildly wrong and - given the volatile times we are living in - is quite likely to continue to get it wrong.

Not long ago both Larry and I put our names to a document suggesting deflation was the real risk right now. As Larry says this morning:

Turning to inflation, evidence suggests that the commodity bubble has burst - as would be expected given the outlook for the global economy: recession in the US, looming recession in Europe, slower growth in China as attempts are made (once the Olympics are over) to rein in inflation. Significantly, even the prospect of a new Cold War as a result of Russia's invasion of Georgia had little impact on the cost of crude. When we look back, July 2008 will be seen as the peak for commodity prices and September 2008 will be the peak for UK inflation.

I think that's right. As Larry says:

Why the confident prediction? This is 2008 and not 1978, and though wage negotiators would love to get compensation for higher inflation through higher wages there is scant evidence that they are capable of doing so. With the economy slowing fast and unemployment a reality, for many workers holding on to their jobs will be this year's pay rise. Higher unemployment and the squeeze on real incomes means depressed consumer spending, which in turn means that companies are going to have to take cost increases on the chin.

There are counter arguments, of course. .... But my hunch is that (the Bank of England] will delay action for a few months, awaiting reassurance that there are no "second-round" effects from the commodity shock. By then, it will be too late to spare the economy from a severe recession. Having failed to lean against the wind when the housing market was red hot back in mid-decade, the Bank is repeating the mistake by keeping policy too tight. It will be so far behind the curve next year that it will be forced into deep cuts in interest rates to stem the tide of repossessions, business failures and unemployment - and to prevent inflation falling well below its target.

I think that's likely.

The explanation is simple: the Bank is using a defunct economic model. It's time to move on. Inflation is not the only issue of concern in the world: that's only true for neo-liberals, and their world view is dead.