Surging oil prices still pack a punch for the world economy but estimates of their impact on either inflation or growth are unlikely to faze Western economic policymakers yet.
As the Organisation of the Petroleum Exporting Countries looks set to proceed with production cuts next month, oil prices should consolidate above $30 per barrel for the foreseeable future and are currently some 10 percent up on the start of 2004 and about 15 percent higher than average prices for 2003.
Economists say a sustained rise of this magnitude could shave somewhere between 0.1 and 0.3 percent off developed world growth.
But as long as the global economy at large continues to deliver forecast growth of up to 4.0 percent in 2004, then the oil impact so far is expected to be tolerable for most governments.
Neither are central banks expected to be overly concerned.
A rebound of up to 50 percent in benchmark oil prices since last May makes inflation forecasting hazardous, but few economists expect these oils swings to provide more than a one-off pulse to headline inflation rates.
While central banks have in the past been keen to head off any so-called "second-round" effects from such an inflation spur, the chance of a spiral of rising prices feeding wage inflation is seen to be minimal in the current economic climate.
Most Western labour markets are now less rigid in indexing wages in line with inflation shifts and a lack of job creation during the current economic recovery means workers' bargaining power is too weak to seek lock-step compensation.
The net impact of sustained price rises will probably be to dent disposable incomes and squeeze profits with higher input costs. But even this effect should be limited - softened so far by US tax cuts and a weak dollar in Europe and Japan.
"The important impact of sustaining these oil price rises will be on growth and not inflation but it should prove pretty modest," said Janet Henry, Global Economist at HSBC in London.
"The Fed's response to the oil price spike in 2000 showed it was much more concerned about the growth implications," said Henry. "And we didn't get the second round wage effect."
The fact petrol pump prices are less distorted by taxes in the US than in Europe or Japan means the US consumer may feel the heat more directly from higher crude prices, she added.
Oil prices have been very volatile over the past five years and forecasting movements has been fraught with difficulties. International and Gulf security concerns, the boom of oil-guzzling China into a major economic power and suspicion of speculative stock building all complicate the picture.
That's even before you start second-guessing Opec agreements on production quotas.
But, in part due to lack of investment in refining and oil infrastructure in recent years, there has been persistent upward pressure on prices despite plentiful overall supply. This has brought benchmark crude prices back above levels seen just before the US-led invasion of Iraq last March and at the peak of the dot.com boom in mid-2000. With sharp retreats in between these peaks, year-on-year headline inflation rates have been buffeted wildly.
Add to the forecasting conundrum the variable geographic impact of exchange rate swings on the dollar-denominated commodity's prices and it starts to become a bit of a lottery.
As a result, economists tend to resort to standard models and rules of thumb to guess the overall net impact. The 30-nation Paris-based Organisation for Economic Co-operation and Development uses its so-called INTERLINK economic model to simulate price movements.
It reckons a 50 percent rise in oil prices from base assumptions would pare OECD-wide gross domestic product by 0.3 percent one year later and 0.2 percent a year after that. The impact on consumer prices is 0.6 percent in the first year and 0.2 the following one.
The growth hit on Japan and the euro zone is marginally higher than the overall OECD or US rates.
Given the OECD's most recent economic forecast from last November assumes an oil price through 2004 of 27 dollars a barrel - about 25 percent below current prices - the impact on its 3.0 percent OECD-wide GDP growth forecast should be quite small.
Henry at HSBC said she used price simulations from a model used by Oxford Economic Forecasting and this suggested global growth would only be 0.1 percent lower and inflation 0.2 percent higher this year if oil prices remained at average levels for the second half of 2003 - about $29 per barrel.
Economists at Goldman Sachs, however, are more bearish and say their model reckons oil prices could take as much as 0.3 percent off GDP in the Group of Seven richest nations this year.
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