WHEN the oil price hit $100 a barrel at the start of this year, it was a curiosity but not a cause for great alarm. The price had, after all, topped $70 in the summer of 2005 when Hurricane Katrina struck, risen above $80 in 2006 and been hovering in the $90s for some time.

But last week’s climb to more than $135 a barrel was different. It meant that, far from retreating from the giddy heights of $100, the price of crude had risen 35% in five months, and doubled in a year. In two days last week oil jumped by $7. This was not just commodity price inflation, it was something more like crude-oil hyperinflation.

With it came almost daily rises in the forecourt price of petrol and diesel. And with oil and other commodity price rises yet to feed through to the cost of most products and services, a new and worrying consensus is emerging in the financial markets and business.

The fear is that this is not a short-term inflation blip, as the Bank of England and the Treasury want everybody to think, but a more permanent shift into a more inflationary world.

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Tim Bond at Barclays Capital put it bluntly. “We have no reason to expect that the inflation outcome over the next few years will be much different to the outcome in the 1970s.”

The 1970s was when the post-war golden age of the global economy came to an abrupt end, ushering in the era of “stagflation” — economic stagnation and recession alongside roaring price increases.

To some the parallels are disturbing. Then, as now, the world had been through a period of strong growth; in the past four years the global economy has expanded at the fastest rate since the early 1970s. Then, as now, the first warning signs came from the rise in commodity prices. Then, as now, the finger of blame was pointed at the Organisation of Petroleum Exporting Countries (Opec).

In 1973-74, the oil producers’ cartel discovered how to use its power to quadruple the price in a matter of months. If predictions of a $200-a-barrel price this year prove correct, Opec will have achieved a similar result, though from a much higher base.

In Britain inflation hit 27% in 1975 and most industrial countries experienced double-digit price rises. Bond does not expect a repeat of that but he warns that inflation will be significantly higher than in recent years and that in emerging economies it is as bad as the 1970s.

“At the moment monetary policy on a global basis is very loose and central banks don't have the tools to deal with a big rise in international inflation,” he said.

Andrew Milligan at Standard Life Investments said Britain was experiencing “stagflation lite” but warned that investors had to be prepared for greater inflation volatility. Any sign that the government was relaxing the Bank of England’s inflation target would go down very badly, he added.

The Economist magazine predicts that, as a result of higher food and energy prices, two-thirds of the world’s population will experience double-figure price inflation this summer. In China, where inflation is 8.5%, higher commodity prices and 18% wage inflation could be a harbinger of things to come. A 60% average rise in food prices over the past year is devastating for poor economies where food comprises a high proportion of spending.

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