Those of us with long memories can still recall the Yom Kippur war of October 1973, between Israel and its Arab neighbours, the subsequent OPEC oil embargo that sent the price of a barrel of oil from US$3 a barrel to about US$12, and the economic turmoil that followed.
We can remember the fallout from that conflict because it lasted for about a decade and a half.
In the immediate aftermath of the oil-price shock, the cost of almost everything else began to rise. Workers naturally demanded hefty pay hikes to keep pace. Government spending spiralled out of control.
An inflationary psychology became embedded in the economy and it took nearly a decade of appallingly high interest rates to wrestle inflation to the ground.
We have been mercifully free of such a vicious and debilitating cycle since the late 1980s when both inflation and interest rates began to recede, but there are good reasons to fear another round of rapidly rising prices. And petroleum is at the root of the problem.
Our economy runs on oil and the cost of this resource is now much higher than it was a few years back.
According to M.J. Ervin and Associates of Calgary, the average price of regular gasoline spiked nationally at $1.26 a litre two years ago following hurricane Katrina.
In late May this year, it stood at $1.15, but could take off again because inventories are extremely now and the peak summer driving season is just around the corner.
Despite such ominous indicators - ominous at least to a layman such as myself - Statistics Canada would have us believe that we have nothing to worry about.
In mid-May, the federal agency reported that the inflation rate in April stood at 2.2 per cent, a slight decline from 2.3 per cent the previous month.
But the Statistics Canada rate is based on a representative bundle of goods that excludes gasoline as well as food on the grounds that these goods are susceptible to rapid price fluctuations which would distort the picture if they were included.
Food prices in general rose 3.8 per cent in April while produce was up a whopping 12.9 per cent.
Consumers take note when the grocery bill rises sharply, when prices at the pumps take a big jump and these things make them nervous.
They are also creating a good deal of skepticism about Statistics Canada and the reliability of its yardsticks, to judge from a recent online discussion with Tarek Harchaoui, assistant director of the agency's consumer price index research program.
The Globe and Mail sponsored the session and, according to Tavia Grant, who co-ordinated it, the newspaper received loads of questions like this one from Ranald Walton of Hamilton, Ont.: "My personal take on inflation is that the official numbers we see are, respectfully, nonsense. Wages, insurance, fuel, housing, etc. seem to be going up a lot faster than two to three per cent."
Terry Topham wrote from Puerto Vallarta, Mexico, that: "Many allegations are made that inflation is not accurately measured, rather it is understated and is in the interest of the government to have inflation less than it really is because (a) lower inflation is politically popular and (b) government costs of various inflation-indexed programs are lessened."
And from Richmond, B.C., Ken Lawson bluntly asked: "When the Liberals were in power for 13 years, did they ask you to cheat on the numbers?" Harchaoui denied any such chicanery and defended the integrity of the agency's calculations, but it is doubtful he did much to erase the skepticism of this questioner. However, most professional economists have more faith in the Statistics Canada numbers.
Ted Carmichael, chief Canadian economist with Toronto-based J. P. Morgan Chase Co., notes that the government inflation rate, at best, is a broad measure of prices and does not apply equally to everyone.
However, Canada uses the same approach as most other western governments.
Still, Carmichael notes that inflation is creeping up, here and elsewhere, and has reached the high end of the comfort scale for most central bankers.
These are very conservative institutions with long memories and they haven't forgotten their battles with inflation in the 1970s and 1980s.
They are determined, says Carmichael, not to let history repeat itself.
Unfortunately, they have only one tool at their disposal and that is the rate of interest.
So if the inflation continues to climb, we should all be prepared for some painful medicine.
(D'Arcy Jenish can be reached at jenish@businessedge.ca)
