Where's this deflation then?

A few months ago there was panic as dire predictions of the CPI falling into negative territory abounded and the spectre of a potential deflationary spiral stalked the land.

I was a bit sceptical of this given the fact that the Bank of England was effectively printing money through their Quantitative Easing programme (OK, they don't actually print money, they just move a few bits around inside a computer but it amounts to the same thing). QE is naturally inflationary so any deflationary pressure which was bound to kick in during a recession was always going to be mitigated to some extent by this. Also, the fiscal stimulus measures that the government took, despite that fact that I thought they were the wrong ones, were also always going to have some inflationary effect. Finally, the huge cuts in interest rates have left lots of lucky homeowners who are on tracker rates (including Mr Reckons here) with money in their pocket that they had not been hitherto expecting.

Given these factors which seemed obvious to a non-economist layman like myself, I must confess to be surprised at the general surprise that deflation has not kicked in. The CPI is at 1.8% for the second month running and it is looking like it might have reached a local minimum as my old maths teacher would have said. I would not be surprised to see it start to rise in the coming months.

Ah, I hear you say (see, I listen quite hard), but what about RPI which is currently at -1.4%. To which I say, you cannot have it both ways. The government has spent years trying to get us to accept CPI as the headline rate (because it excludes mortgage interest which is politically convenient for them) and the BoE is compelled to make its interest rate decisions based on this measure. So why should I consider RPI when considering the rate of inflation when the BoE is not expected to? Anyway I am sure RPI will start to head north soon too. It's only so low because of the massive cuts in interest rates which distort things given how reliant on the housing market our economy is.

All of which economic cogitiation leads to me to the most important question. Should I exercise my option to go for a fixed rate mortgage at 4.09% for 3 years (I have reserved this potential rate for a small fee and have the option to exercise it until December but am yet to fill in the paperwork and submit it) ? I am currently on a tracker at 1.26% above base rate (so 1.76% at the moment) but of course as the CPI starts to rise the BoE will start to raise interest rates.

I discussed this with an economist a couple of months ago and she suggested I wait and see. I think I have waited and seen enough though. Even if I am wrong and the CPI starts to fall again, I am certain that in another year it will be rising and this option would protect me from the effects of subsequent inflation (which could be severe if the BoE do not time the cessation of the QE programme correctly) until the end of 2012.

What do you think I should do, stick or twist?