There is a fraud at the heart of our economy.

It is fraud that our leaders have chosen to ignore, if not actually perpetrate. It is a fraud that causes the wealth gap to widen. And it is a fraud that is destroying the middle class.

That fraud is inflation.

Download the new Independent Premium app Sharing the full story, not just the headlines

Inflation once meant 'an increase in the supply of money leading to higher prices'. Deflation meant the opposite – 'a decrease in the supply of money leading to lower prices'.

These meanings have, however, been distorted over time, so that inflation is now 'rising prices' and deflation 'falling prices'. It may not seem important - meanings of words change all the time - but it is.

The official method of measuring inflation is the Consumer Price Index (CPI). The Retail Price Index (RPI) was once used and is often still referred to. Both track the prices of things we commonly use – food, clothing, transport, energy and so on.

From 1989 to now CPI has averaged just 2.8 per cent growth per year. But the amount of money circulating in the UK has grown at an average annual rate of 11.5 per cent over the same period.

Money supply has also grown faster than the economy. In 1971 there were 31 billion pounds in circulation. Now there are just under £2,100 billion (£2.1 trillion). That is a 67-fold increase.

Are we 67 times richer? Some people are. But most of us aren't.

Research by Positive Money shows that only about 10 per cent of newly-created money has gone into the kind of consumer goods tracked by CPI. So all CPI does is measure the effects of about 10 per cent of money creation.

Positive Money's research shows that 13 per cent of newly-created money has gone into real businesses that create jobs and boost economic growth; 37 per cent into financial markets and 40 per cent into residential and commercial property.

Is it any wonder the financial sector has grown so disproportionately large and powerful, or that the British are so obsessed with houses? That's where the money's gone.

The Bank of England's trusted tool to deal with inflation is to raise interest rates. The effect of higher rates is that money costs more to borrow and people borrow less. So the cost of assets that people use borrowed money to buy - houses especially - tends to fall.

But the last thing government wants is falling house prices. Falling house prices between 1989 and 1994 made the Tories unelectable for half a generation. Never mind the fact that young people cannot afford to buy a home, we'll give them Help-To-Buy instead. Policy-makers will not raise rates unless their hand is forced. So how handy is it to have an official measure that 'proves' that inflation is low? Especially one that ignores 77 per cent of new money-supply.

Even with the suspicious measure that is CPI, for five years between 2008 and 2013 official inflation was 3 per cent. The Bank of England has a mandate to keep inflation at 2 per cent. Yet still it did nothing. Rates remained at the unprecedented low level of 0.5 per cent.

If you owned the assets or if you operated in the sectors that have benefited from all this newly created money - the financial sector and the London property in which it mostly lives - you’ve made spectacular gains. But what if you didn’t?

You got left behind.

And the wealth gap just got bigger.

Wages have not kept up with the 67-fold increase in money supply. They've gone from about £2,000 in 1971 to around £25,000 today. Many families now find themselves having to work longer hours, with both spouses in the workplace, taking on larger debts and having fewer children just to maintain an ordinary middle class lifestyle. Many of their children face unprecedented levels of debt and, in many parts of the country, will never be able to buy a house.

What is happening is an insidious transfer of wealth from those that don’t own the right assets or operate in the right sectors to those that do. This process will not stop until we start measuring inflation accurately and, yes, honestly.

Low interest rates penalise labour and reward capital and assets. That is the simple mantra to remember.

Wouldn't it be nice to have money that buys you more each year instead of less?

The Bank of England is an unelected body that wields tremendous power. For all the talk of its independence, its head is appointed by the Chancellor and is answerable to him. Serious questions need to be asked about what it gets up to with its and our money.

Dominic Frisby is the author of Life After The State. He is crowd-funding his next book, Bitcoin - The Future Of Money?, with Unbound.