But of course, for those with a shorter time horizon, the recent price rise still appears very significant. Increasingly, agents in the world economy appear to suffer from long-term amnesia, in terms of not looking more than at most a decade back. Seen only in this light, it is true that the latest OPEC-induced supply limitation has indeed been effective in causing world oil prices to rise very sharply. Chart 2 show how this appears in the overall context of the 1990s.
 
What is interesting for the nineties, of course, is that the oil price rise is associated not just with no setback, but even with a recovery in world trade and output growth (albeit a relatively weak one) from 1998 onwards. In fact, in the second half of the decade, the movement of oil prices has been in the same direction as that of output and export volumes, in sharp contrast to the experience of the 1970s and early 1980s.
 
For this, we need to find a further explanation beyond that of the comparative size of this particular price rise. As mentioned earlier, the price increase itself reflects the sudden ability of OPEC, after years of relative incapacity, to determine levels of output and adhere to the supply discipline necessary to make an impact. Such discipline on the part of all OPEC members need not last for long, as the recent decision of Saudi Arabia to increase its output, and the resulting immediate declines in prices per barrel, indicate. But if they are maintained, then they may in fact result in firmer prices for a more prolonged period.
 
There are several answers to the question of why the rise in oil prices appears to have a much more limited impact on other prices. The first, and possibly the most significant, is that nowadays in most countries, the inflationary impact tends to be limited to the energy components of general price indices and to some of the industries which are more energy-intensive. They generally do not have second round effects on wages and other costs. This is a reflection of the greatly reduced bargaining power of workers generally, and the inability to ensure any meaningful indexation in most countries, after a decade of "globalisation".
 
Because the rise in oil prices typically does not enter wage costs in the second round, it allows other prices to be more or less maintained. But there may be another aspect to this as well. The recent period has seen abnormally high rates of return on private capital in the developed industrial countries, to the point where the OECD estimates that average rates of return on business investment are in excess of 16 per cent (compared to around 12.5 per cent in the 1980s).
 
Such high rates of return may allow capitalists to suffer a slight drop in mark-up if demand conditions are anyway not very buoyant, which is the case everywhere outside the United States. Thus, even when energy costs increase, there may be a tendency to repress consequent price increases and take a small decline in mark up simply to maintain demand for their products. Of course, this is not likely to be a very long-lived practice, and so if the oil price hike is prolonged or even if it stabilises at this level, we may witness a more generalised increase in other prices.
 
One reason why both workers and capitalists may be more willing to accept some loss of indexation (quite aside from the obvious issue of lower bargaining strength of workers generally) is because of possible expectation that such an oil price hike may be short-lived. Indeed, one of the most apparent lessons of the experience since the early 1970s is the volatility of the world oil market, and the tendency of booms to be followed by long period of slump in price.
 
A look at Chart 1 will reveal that over the six cycles that can be discerned in oil price movements over the period, nearly three-fourths of the period was spent in what could be called slump phases. Also, booms have generally been of shorter duration than slumps, and before 1999 the most recent experience was of very prolonged slump of nearly five years duration.
 
It is true that this does not necessarily mean that the future pattern of oil prices will follow the same course. But it may well affect expectations and therefore the behaviour of economic agents who would set their own pricing decisions and wage demands accordingly. This experience was not available to economic agents in the 1970s, who therefore tended to react with much stronger inflationary expectations which eventually became self-fulfilling.