It seemed like an ordinary day. I was driving into the historical and picturesque town of Winchester to visit customers when the radio news announced that the Bank of England base rate had been increased to 12%.

Panic set in as this meant my salary would be eaten by my mortgage payments, and I would barely have enough to pay for food and utilities. This panic turned to despair later that day when rates were hiked again to 15% – that was it – destitution was upon me. Food was now an unaffordable luxury.

This is not the plot of my forthcoming dystopian novel (watch this space), but my memory of the 16th September 1992, since known as “Black Wednesday”. The UK were members of the EU Exchange Rate Mechanism, which set limits on the exchange rates between members. Speculators (led by George Soros) were selling borrowed UK gilts, driving down prices, then buying them back cheaper a few minutes later.

This devalued sterling in relation to other ERM currencies. To keep the price of sterling within the agreed ERM limits, the central bank was buying sterling to prop up the price, but it was still falling. John Major’s response was to increase interest rates twice in a day by a total of 5%.

Fortunately for me (and a lot of other frantic homeowners) at 7:40pm that evening, Norman Lamont the Chancellor, declared that Britain had suspended its membership of the ERM and the second rate rise was cancelled.

Fast forward to today; homeowners in their early thirties (sadly a rare breed) have only ever seen their mortgage base rate below 1%. Lowering interest rates is one of the key levers central banks pull to stimulate growth. But once they have been lowered to zero, you have a problem – negative interest rates aren’t very palatable – people don’t like to pay banks for storing their money, so governments and central banks have resorted to ‘quantitative easing’. This is essentially increasing the amount of money in the system, and governments the world over have been pumping out new money for years to stimulate growth.

If rates remain this low and the stimulation works, inflation is more likely. It is already over 5% in the US (measured by headline Consumer Price Index – CPI) and there are inflationary pressures from continuing quantitative easing, increasing job vacancies and low unemployment (ie greater competition for staff).

So, is there a storm brewing? Various commentators hold differing views, which brings me to my point (finally! I hear you say). Forecasting isn’t about having a crystal ball and basing decisions on a single point prediction. It’s about understanding how different scenarios might play out, so we can make better decisions and course-correct based on sound analysis.

There was a time when all models had inflation built in – it mattered. Since forecasts are looking into the future, typically a few years, we need to start taking this into account again – at least in our scenario analysis, to understand its potential impact.

What are you doing about inflation in your forecasts?