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On Wednesday oil futures hit an 11-month high of US$95 a barrel before falling back to US$93 on Thursday, and many analysts believe crude will cross the important psychological threshold of US$100 some time this fall.

But while the surge in crude prices over the past three months will no doubt complicate life for central bankers, US$100 oil isn’t what it used to be, and the shock to the economy may not be as great.

The 35-per-cent run-up in the price of U.S. West Texas Intermediate crude since June follows moves by Saudi Arabia and Russia to cut production, as well as concerns over declines in U.S. crude oil inventories. Given the history of oil shocks preceding periods of economic crisis, such as the 1970s era of stagflation, and the 1990 and 2008 recessions, it’s not hard to see why many worry about a return to US$100 oil.

Yet when oil prices are adjusted for inflation, the current price spike looks less menacing than what’s come before.

When oil prices skyrocketed past the US$100 mark at the start of 2008 as the U.S. economy tipped into the Great Recession, it was the equivalent of oil topping US$140 in today’s dollars. Real oil prices kept climbing to a peak of US$189, more than double the current price.

In the same way, the price of oil before this latest surge sat at around US$75 in June. That’s more or less in line with the average real price of oil over the past 50 years.

Even so, rising energy prices have led to a resurgence in inflation, prompting fears that central banks will be forced to hold interest rates higher for longer. Indeed, part of Thursday’s pullback in oil prices stemmed from concern that persistently high interest rates will in turn stunt demand.

Decoder is a weekly feature that unpacks an important economic chart

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