One major indicator of inflation is the price of petrol and the latest information from the International Energy Agency (IEA) shows it will only get more expensive.
Oil is deeply embedded in the economy, with the cost reflected not only at the petrol bowser but in food and clothing products.
The IEA is an independent, multi-government agency formed out of the wake of the 1973 oil crisis. It forecasts oil production, monitors the international oil market and other energy sectors.
Only five years ago it confidently stated that oil production was set to rise to 120 million barrels a day by 2030.
But IEA chief economist Fatih Birol says the world's crude oil production peaked in 2006.
He says oil prices are likely to rise 30 per cent over the next three years.
"The existing fields are declining so sharply that in order to stay where we are in terms of production levels in the next 25 years, we have to find and develop four new Saudi Arabias," he said.
"It is a huge, huge challenge that we continue to underline."
Dr Birol says although peak crude oil production is already behind us, liquid natural gases may provide a viable alternative.
But he says one of the conclusions the IEA has come to is that the age of cheap oil is over. At the height of the global financial crisis in 2008, oil spiked to $148 a barrel.
Dr Birol says the impact of both a financial crisis in Europe and global instability in oil-rich regions means crude oil will only get more expensive.
"The amount of increase in the oil input bill in Europe is equal to the government budget deficit of Greece plus Portugal put together," he said.
"It is only the increase value of $90. If it increases further ... we believe [it] will increase at least 20, 30 per cent higher in the next few years to come and this would mean additional pressure on the financing of many governments who are the oil importers."
Dr Birol says the oil reserves might be there but the access is not.
He also says it could be in the best interest of producers if crude oil is not always flooding the market.
"The producers, intentionally or unintentionally, may not bring the oil under the reserves to the markets," he said.
"For some producers, it is better that oil doesn't come to market so they would like to see perhaps higher prices as a result of tightness in the markets."
The IEA says governments around the world need to rethink their reliance on oil.
Wednesday, April 27, 2011
Age of cheap fuel is over: IEA
