Only a handful of people in Europe will be able to remember the horrific pain inflicted by hyperinflation between the wars: we look at yellowed photos of men and women buying groceries with a rucksack full of worthless banknotes, with money losing value faster than it could be printed. Bills denominated in millions were handed over for an egg.

Yet most of us remember how until very recently rents shot up year after year, how credit was expensive and hard to get, and anecdotal evidence convinced us that our shopping got more expensive by the day. “It is the Euro’s fault,” we would say.

It was therefore with great trepidation that consumers and many conservative politicians watched the world’s central banks first switching to zero interest rates to then swamp the financial markets with trillions of cash. To fight the Great Recession which started in 2008 – with banks, insurers and car companies being wiped out and eventually whole countries going bust – central banks ‘printed’ money like never before.

Surely such hocus-pocus must lead to inflation, many fretted. It didn’t. No matter how much cash was showered on us, nobody was prepared to pick it up. Credit volumes shrank, money in circulation did hardly budge.

Soon the monetary guardians, traditionally tasked with keeping inflation in check, were worrying that there was too little inflation. The spectre of disinflation scared central bankers, economists and pundits, who feared a Japan-style scenario of ever falling prices, with consumers reluctant to spend (Why would one wish to by a new washing machine today, when in a year’s time it would be even cheaper?). The economy would stall, markets would shrink and people would be content buying every day less.

As we can see in Japan, this is far from disastrous. This is what shrinking populations are about, after all. Fewer people need less stuff. But this doesn’t necessarily mean they live in destitution. I think neither inflation nor disinflation is burdensome for a populace so long as it is a steady, incremental process and not happening in fits and cataclysms. There are winners and losers in both scenarios.

Employees and pensioners suffer from inflation when their receipts are not lifted in tandem with inflation, which they rarely are (if you are not a UK ‘triple-lock’ retiree, that is). Savers suffer from inflation because it corrodes their wealth. Those who owe lots of money rejoice, because over time what they nominally return is worth less than the sums they have borrowed. Asset prices, the value of stocks and housing, are carried by inflation and will incur damage when prices fall.

However, so long as this is a steady process, people can adapt. They will organise consumption and income in accordance with their perception of the future. For savers and small investors like you and me it is important to understand that bonds and saving deposits will be devalued through inflation. Only floating rate notes or inflation protected bonds will at least partly cover the fall in real interest rates (nominal rates minus inflation).

If we don’t know why inflation went into hiding, we cannot be sure when it will reappear

It is important to realise too, that “inflation” cannot be measured like air temperature. It is a statistical assumption. In most countries it is a basket of a hundred consumer goods checked for monthly price changes. Statisticians liaise with thousands of merchants to weigh the prices of everything from bananas to cell phones, from cars to washing powder.

This ‘basket’ of goods varies from country to country and over time. It sometimes even excludes food and fuel for their volatility, while it is precisely these that make us perceive price rises most acutely. If soft furniture or television sets get cheaper over time it will be irrelevant to us as we do not buy these items on a daily basis. We may never buy them at all.

It is therefore only logical that observed price movements don’t just differ from country to country (the US for instance only measures urban shopping) but also from person to person: if you never buy sport equipment or toys you will not have noticed how cheap they are now when compared to a year ago. And it seems to be a case of divine justice that the small sliver of rich people in the world whose wealth has accumulated exponentially over the last 30 years suffer much higher inflation effects than we do: very few people today could afford to maintain Downton Abbey!

Economists, and most central bankers are economists, look at inflation in peculiar ways. When house prices go through the roof and stock markets shoot to all-time highs, they don’t call this inflation, because by their definition it isn’t. When a national currency drops in value and prices for imported goods go up painfully, they are not overly worried. Not much can be done, after all. Only when wages go up, only then they will start closing the taps.

Because higher salaries mean higher consumption means higher prices mean higher salaries mean higher prices – and all of a sudden we are in the thick of it and inflation goes rampant and the economy will have to be suffocated to get things under control again. Interest rates will go up (our bonds will lose), credit volumes will be strangled, business mutilated and workers laid off.

The dominant theory over the last decades was this: once unemployment is lower than five per cent, it is time to take away the punch bowl. And this now is exactly the conundrum for all economists: the US seems to be heading towards full employment and yet inflation stays stubbornly below expectations and wages hardly grow.

Inflation seems finally slain. There are many factors at play keeping prices and wages subdued. Price comparisons on the web exert a downward pressure on prices. Many internet companies depress prices by avoiding local and federal taxes, and by squeezing value out of products and services by ‘sharing’ – sharing flats, cars, even consumer goods like half-eaten cereals or half empty soft drink bottles.

Many corporations are too global to be confronted with wage demands. Labour was outsourced and automated for so long that workers have lost their bargaining power. With inflation low there’s no good argument to go to war with employers too. Artificial intelligence and robotics will further weaken the labour market.

So long as you have a job it seems advisable to keep your head down (if you are not working for Alitalia, that is). This is what most employees seem to think, even when job vacancies are on the rise and degrading “zero-hour-contracts” seem to have peaked.

So, while the Fed, ECB and BOJ worry their heads off with inflation seemingly in its death throes, can we small savers let the champagne corks pop? Not yet. If we don’t know why inflation went into hiding, we cannot be sure when it will reappear. Sometimes a single event can cascade into big changes. Remember the oil price shock and a horrible decade of stagnant growth and inflation going through the roof?

Andreas Weitzer is an independent journalist based in Malta. He reports on the economy, politics and finance. The purpose of his column is to broaden readers’ general financial knowledge. It should not be interpreted as presenting investment advice or advice on the buying and selling of financial products.

Please send in any suggestions for discussion in this column to: editor@timesofmalta.com – Subject: Sunday Times Personal Finance.