Between April 2005 and April 2006, the price of a barrel of oil jumped from $49.7 to $71.9, a rise of nearly 45%. Since no sector of industry or region of the country is immune from higher energy costs, and because the transmission mechanism is almost immediate (crude prices increase one month and petrol pump prices usually respond within weeks), the impact was felt quickly across the economy. And because energy ­ including electricity, gas and water ­ accounts for 7.5% of the Consumer Price Index, there would be an impact on the overall rate of inflation.

With energy prices increasing in annual terms by almost 20%, so the CPI as a whole moved upwards, from under the 2% target in March 2006 to 3.1% a year later. Not surprisingly, the MPC responded by raising interest rates, from 4.5% to 5.75% in five equal instalments. This was as much to warn companies and unions not to use higher oil prices as a reason to raise their prices or push for higher wage settlements as it was to dampen the immediate inflationary threat. From a peak of 3.1% in March this year, the CPI has now fallen for six months and has been back within the 2% target rate for the past three months. This may have been due to the rate rises, or to the fact that the annual rate of energy price increases fell back to under 1%.

But are we now expecting a re-run of interest rate rises just when it seemed that the inflationary threat has dissipated? Oil prices are soaring and are currently on the verge of breaking through the $100 a barrel threshold for the first time. This is after they had dropped to less than $60 in January. And, of course, petrol prices are not far behind: £1 per litre in the UK is now a fact of life. While the threat from energy prices is as potent as ever, the economic background in autumn of 2007 is rather different from a year ago.

In the first place, there is far more uncertainty about the outlook for the global economy in the coming months, which raises questions of whether the current price is a new equilibrium or a short-term spike. There are grounds for believing the recent jump in price does not really reflect the real supply-demand balance. If, as seems likely, the US economy weakens, it will have an impact on China, and slowing activity in the two major energy consuming countries in the world will ease some of the pressure on oil demand, and therefore prices. The slide in the US dollar not only reflects worries about the US economy, but also makes the impact of oil price rises look worse than it really is in sterling terms.

And there is, as ever, some speculation in the current price ­ as equity markets wobble in the wake of the sub-prime crisis investors have been turning to oil. Apparently, trade in oil futures has been brisk. Political uncertainties have always been a factor in the oil price. Turmoil in Iraq, tensions between Iran and the west, unrest in Nigeria and even the devastating damage caused by storms in Mexico have all had an impact.

So, the consensus view is that oil prices are at or fairly close to a short-term peak. OPEC has agreed to step up production in November and several non-OPEC suppliers will be tapping into new fields in the coming months. A gradual increase in supply and a modest easing of demand should see oil prices come off a bit. Hopes that they will drop to $60 to $70 a barrel are, however, likely to be unfulfilled as the centre of global growth moves away from the traditional industrialised countries of the west and to emerging markets, which accounted for 60% of global growth in 2006. This is creating new sources of energy demand.

For the UK, there is an obvious dilemma for the policymakers. The recent percentage increase in oil prices comes close to matching the 2005-06 rise and the policymakers are probably nervous that the impact on the CPI will be similar. But where 12 months ago the MPC started to increase interest rates with the economy growing strongly (GDP is currently growing at an above-trend rate of 3.3%), the prospects for the next 12 months are far more uncertain. Chancellor Alistair Darling admitted as much in his pre-Budget report in October when he scaled back the Treasury’s projections for 2008.

The emerging weakness in the highly-indebted personal sector and constraints on government finances ­ the two primary drivers of activity for the past few years ­ have led to general downward revisions to growth. Factor in a credit crunch and volatility in equity markets and everything points to lower interest rates. The confident predictions of 6% by the end of 2007 have long gone, to be replaced by 5% by the end of 2008. This would ease the debt pressures and give a bit of a boost to spending.

But what happens if oil (and now food) prices take the CPI back into danger territory? Will the MPC be more concerned about the risks of rising prices or slowing growth? This is an uncomfortable choice and when we faced it in the 1970s (albeit with smaller numbers), it was called stagflation. Perhaps 6% might still be on the agenda in 12 months time.