In 1972 my father bought a home on the south coast of England for the shockingly high price of £11,500. His mortgage was £8,000, or a little under three times his salary. Within a few years, galloping inflation had sparked the near collapse of the British economy, a run on sterling, and an IMF bailout. Yet by 1980 the ravages of runaway 1970s price rises had somehow left my father, and many like him, a fair bit better off.

State pension to rise after UK inflation increases to 3% Read more

Inflation-related pay increases meant that by 1980 his salary was not far short of £8,000. The “monster” of 1970s inflation had kindly wiped out the real burden of the mortgage, slashing it from three times his income to just one times. And the value of the house had risen to more than £20,000. I remember quipping at the time to my dad (and proudly using my Rockwell electronic calculator) that if house prices continued to rise at the pace they were in 1979, his home would be worth £400,000 by the time he retired. “Don’t be an idiot, son,” he said. But as it turned out, it was.

Farther along the south coast, for my retired grandfather the inflationary 1970s proved to be an entirely less attractive decade. His pension allowed for rises of up to 5% a year. Yet by 1975 inflation was running at 24%. The 1970s left him and his wife with a miserable, penny-pinching existence in retirement.

Inflation is entirely amoral. It plunders the accumulated savings of the hardworking. It slashes the real value of the debts taken on by the profligate. Are we prepared for its return?

Official figures today reveal that the consumer price index has risen to 3%, the highest in five years. The retail price index – the one used in the 1970s – is even higher, at 3.6%.

These figures remain a fraction of those in the 1970s. But once unleashed inflation has a habit of spiralling upwards. It was 7% in 1972, but went to 9% the year after, then 16% the year after that before reaching the all-time high of 24% in the mid-1970s. It’s a classic case of being careful what you wish for.

Every central bank wants a little bit of inflation. The Bank of England likes 2%. Less than that and the governor has to explain to the chancellor why he’s undershooting. But everyone’s terrified of it going much above 4% or 5%.

And in truth, the 1970s weren’t that rosy even for the “winners” like my father. The base rate jumped to 15%, mortgage rates even more. It didn’t help one jot that the real value of the mortgage was falling when the monthly cost of servicing it was soaring.

My father was lucky to keep his job. Millions of others didn’t, as interest rate rises pushed the economy deep into recession.

The governor of the Bank of England, knows a 5% interest rate is medicine that will kill the patient

Of course this time around it will be different … it will be much, much worse. The unprecedented build-up of household debt – from mortgages to car loans and credit card balances – leaves individuals desperately vulnerable to a rate shock.

Economists talk of a “new normal” where the Bank of England base rate rises from its current level of 0.25% to as much as 3% to keep inflation at bay. At that level, the wheels (just about) stay on the economy. If forced back to 5% – where they were before the financial crisis – the outlook is grim.

Will that happen? It’s unlikely, not least because Mark Carney, the governor of the Bank of England, knows a 5% interest rate is medicine that will kill the patient. In any case, while the latest inflation rate makes for “highest in five years” headlines, it is unlikely to stay there for long. The spike in inflation is largely down to the one-off fall in sterling that has pushed up import prices. We saw a similar inflationary pattern after sterling’s collapse from $2 to $1.40 in 2008-09. Even though Carney believes inflation has not yet peaked, most economists reckon he will “look through” the current spike and avoid anything other than nominal rate hikes, particularly as Brexit uncertainty reigns.

Of course, he could be very wrong, and inflation could grip the British economy again. If you’re young, have manageable debts, keep your job, and earn good pay rises, then such a rise would probably leave you laughing. But the rest of us will be crying.