It is more than 40 years since Iain Macleod, then shadow chancellor, first coined the word stagflation - an appropriately graceless term for an ugly combination of slow growth and high inflation. But as inflation yesterday hit exactly the level that caused him to devise the expression in 1965, the dilemma he highlighted confronted a whole new generation of policymakers. Should they deal with the "stag" and attempt to reflate the economy by fiscal or monetary means or bear down on the "flation"?

At 9.30am, when the Office for National Statistics revealed that consumer price index (CPI) inflation stood at 3.3 per cent, the numbers were even worse than many had feared. Deepening the gloom, the rise in inflation was spread across almost all goods and services, suggesting it might climb higher, and last longer, than previously thought.