Not so long ago, one City luminary was writing a book about the death of inflation. Now, on the back of another surge in prices few saw coming, that same Square Mile establishment is in a ferment about whether the inflation monster is well and truly out of its cage once more, poised to ravage the UK's carefully-nurtured reputation for economic stability.

When Roger Bootle published his volume about the challenges of living in a zero-inflation world back in 1996, the newly-introduced consumer price index (CPI) was actually rising by around 2.7% a year, the same annualised rate of change in the cost of living it recorded between October and November last year.

But now that it's hit a record 3% in December and Bank of England governor Mervyn King has narrowly escaped writing his first-ever open letter to Gordon Brown to explain why, the "spectre of boom-bust", as one right-wing newspaper agonised yesterday, "returns to haunt us".

The last time the previous official measure of prices - the retail price index, or RPI - hit the 4.4% it reached last month was in 1991, when we were immersed in the first Gulf War, had just tasted recession south of the border and when UK interest rates stood at an uncomfortable 11%. Today rates are less than half that, at 5.25%.

However, the question on most lips now is: How many more turns of the monetary screw will be needed to get inflation back under control this time around?

If King and his eight colleagues on the Bank's Monetary Policy committee had still been targetting RPIX (the old RPI measure less mortgage interest payments), he would already have been writing to the Chancellor to explain how the MPC had gone so far off the rails.

That RPIX measure hit 3.8% in December. Prior to December 2003, the remit set for the MPC by the Treasury was to target RPIX inflation of 2.5% and, in any event, to keep prices within the band 1.5% to 3.5%.

So, at 3.8%, had the rules of the game not been changed, King would already be penning his first mea culpa. And remember, this governor is not a fan of the current CPI measure (target 2%, permitted range 1% to 3%). His main beef is its complete failure, unlike its predecessor RPIX, to take any account of changing house prices or rising council tax levels, both of growing significance in assessing domestic demand in recent years.

At the beginning of November, an exasperated King told a House of Lords committee that, although the Brussels-based experts who devised CPI had plans to include a measure of house price inflation, actual proposals had been delayed so often he did not expect to see them bear fruit "in my lifetime".

The governor had also warned about the consequences of changing from RPIX to CPI at the outset. In a speech in Birmingham in January 2004, he cautioned that, while the formula used to calculate CPI was superior, it wasn't measuring precisely the same price phenomenon as the old index.

Unlike thermometers calibrated to measure temperature in fahrenheit and centigrade, different inflation indices don't simply give different numerical measures of the same price patterns. If you exclude some important prices from the basket, you get a different result.

In that speech three years ago, King pointed out that CPI inflation had been below its new 2% target for all but three months since the MPC took charge of monetary policy in May 1997. RPIX inflation had been at or above its target for all of the previous year. The gap between the two measures had peaked at 1.7% in June 2003 and showed little sign of shrinking to the 0.5% implied by the target shift (from 2.5% RPIX to 2% CPI) set by the Treasury.

It still hasn't, although it's down to 0.8%. But there's a sense, behind King's actual words, that the Bank thinks the Treasury moved the monetary goal posts four years ago in a cavalier and ill-thought-through way.

Worse, the latest surge in CPI inflation to 3% has been fuelled by the Chancellor's own behaviour. His decision, in December's pre-Budget report, to raise duties on petrol and diesel has added 2p a litre between November and December, compared with a 3p-a-litre fall this time last year.

So if King does have to write that letter over the next few months, might he be tempted to suggest: It's all your fault, Brown, for saddling us with this crap new index and for raiding the nation's forecourts just before Christmas, just as we were trying to navigate our way out of some short-term difficulties?

I doubt it, but the strains may well show in more subtle ways. The MPC is now traversing a very taut tightrope. Prevailing global energy prices have played a major part in fuelling this surge in inflation. They are now in retreat. And as the impact of year-old price increases begin to drop out of the index, inflation should begin to moderate later this year.

The great unknown is what the current surge in all the inflation indices, but especially RPI, will do to wage claims.

If the lid comes off there, all bets are off. One thing's for sure. No-one is talking about burying inflation now.