We are indeed into the upswing of a normal cycle and that is good. But the debt burden will increasingly curb our exuberance in the years ahead and may well mute the next stage of the upswing.. It is pretty simple to make money when your customers are addicted to your product. As a result, tobacco stocks are never likely to run out of puff. Stock market fashions may ebb and flow but the cash keeps rolling in, dividends keep rolling out to shareholders, and groups such as Gallaher have plenty of firepower with which to go adventuring in the new markets which are opening up out east. In Kazakhstan, it has captured more than a third of the market.The entry of 10 new member states to the European Union will mean more of the cheaper cigarettes coming back west, which could prove another threat to Gallaher’s entrenched positions in countries including Germany, Ireland and the UK. The effect of a high interest rate, high inflation environment is to bring forward the burden of debt repayment into the early years of the loan.

The third chart, also taken from the Bank’s Inflation Report, illustrates this. It assumes that the initial loan of a 25-year repayment mortgage is three times earnings; that earnings go up by 2 per cent a year in real terms and the real interest rate is 2.5 per cent. Everyone worries about it, including the OECD in its latest Economic Outlook, published this week. The ratio of house prices to average earnings is the highest on record, higher even that during the 1988 peak. But affordability – the amount that people have to set aside each month to service their mortgages – has not risen nearly as much as it did in 1988 because the general level of interest rates is so much lower now.But so too in the general level of inflation. But that may take a long time.The UK housing market provides an intriguing test case of the effectiveness of monetary policy Rates are rising and will rise more Everyone knows that. Now, as rates go up, you would expect that to have more impact on the “Anglo” nations.

India puts less pressure on the world’s natural resources, for it tends to under-invest in infrastructure, rather than over-invest in it. Nevertheless as India grows it too will increasingly affect raw material prices.There are also, within the developed world, features of this cycle that seem abnormal Take the differential impact of very low interest rates. These have boosted demand in the entire English-speaking world but largely failed to do so on the continent or in Japan. For some reason Americans, Britons and Australians behave differently. Part of the explanation lies in attitudes to home ownership and housing finance, but that does not explain why Germans and Japanese consumers are so loath to borrow money to fund their purchases. It is not clear how monetary policies designed to curb inflation, or boost demand, in the rich developed world will be effective when much of the force driving both inflation and demand comes from outside the developed economies.We do still have home-generated inflation in services, but arguably the entry of India as a place to outsource many such services will start to have a similar deflationary effect, at least in the private sector.

Finished goods prices are falling and raw material prices are rising. That is different to previous cycles, when the price of both would rise more or less in tandem. This year alone China is adding as much new generating capacity as the entire installed capacity of the UK.So thanks largely to China, a twist is taking place. China has now passed Japan as the world’s second largest oil consumer. Much of the additional oil demand is for electricity generation.