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Just as global monetary policy switches toward high-altitude cruise control, another bout of turbulence is bearing down on the world economy with surging oil prices.

The approach of crude toward US$100 a barrel is presenting central bankers with a reminder that the era of volatility heralded by the pandemic and war in Ukraine isn’t going away.

It showcases how the “higher-for-longer” stance that Federal Reserve Chair Jerome Powell signalled for interest rates at Jackson Hole last month is being framed more than ever by the “age of shifts and breaks” that his euro-zone colleague, Christine Lagarde, described at the same event. Whether the crude spike is just a temporary blip or more enduring is a question confronting central bankers meeting this week from London to Washington — not least as oil can act both as a spur to consumer prices and a brake on economic growth. That trade-off will test the emerging consensus among officials that inflation risks are contained enough for them to pause tightening for now.

“The latest spike in oil prices is massively unhelpful,” Dario Perkins, an economist at GlobalData TS Lombard, said in a report. “That said, it is important to keep these recent inflationary developments in context. We are not yet in danger of undoing 12 months of solid disinflationary progress — not even close.”

Brent crude has reached a 10-month high around $95 a barrel as export curbs by Saudi Arabia and Russia combined with an improving outlook for the US and China to drive prices higher.

For central bankers, such commodity spikes can be an immediate red flag. International Monetary Fund staff, in a new paper looking at over 100 inflation shocks since the 1970s, found that only in about 60% of cases did consumer-price growth durably slow within five years.

If that increase ultimately means oil averaging US$100 per barrel through the fourth quarter, that could inflict a peak impact of up to 0.9 percentage point on US inflation, according to Bloomberg Economics calculations. In the euro area and UK, it’s closer to 0.4 percentage point. “Oil’s run is going to play a factor for all central banks” as inflationary effects start to move in the “wrong” direction, said Brad Bechtel, global head of foreign exchange at Jefferies in New York.

Faster inflation would be a big blow for the bond market, which is already betting the Fed will have to hold rates elevated for longer to get price growth back to target.

Two-year Treasury yields are up more than 30 basis points since the start of the month, and are trading near a 16-year high seen in July. Yields across the German curve have edged up about 25 basis points this month alone, leaving the 10-year tenor close to the highest level since 2011.

Such concerns hang over a pivotal week for global monetary policy, with the Fed preparing to pause tightening on Wednesday, albeit with a possible hint at more action.

On Thursday, the Bank of England, Norges Bank, Sweden’s Riksbank and the Swiss National Bank may follow suit with what could turn out to be either a final or penultimate increase in borrowing costs, and a pledge to hold them high. The Bank of Japan on Friday isn’t expected to take any major steps, but the communications groundwork appears to be under way for the eventual scrapping of the last negative policy rate among major economies.

Last week, the European Central Bank signalled a pause after a close-run decision to raise rates again — a move that its former chief economist, Peter Praet, immediately linked to rising crude.

“Consumers, households are extremely sensitive to oil prices and food prices, so I think it was right for the ECB to send a signal,” he told Bloomberg Television after the announcement.

Inflation expectations in Europe are pushing higher. The market is betting consumer prices will rise around 2.4 percent on average over the next three years, well above the ECB’s target, and up from less than 2 percent just two months ago. —Bloomberg.