With newspaper headlines declaring oil prices at 23-year highs and markets snarled by uncertainty over inflation, it is a busy time for economists whose job it is to unravel the data. Andrew Milligan, head of Standard Life's global investment strategies, is paying close attention to what is driving markets, the effects of globalisation and the impact of geopolitics. Mr Milligan says the amount of attention focused on the oil price has now gone too far. The main factors driving the price increases could quickly become unwound, as he cannot see the robust demand scenario being sustained. 'While China's economic growth has contributed to rising world oil prices, the price of oil should be put into perspective. There has been too little historical and industry analysis,' he says. Investors with portfolios containing oil-related stocks should look at the cost of oil in different countries after adjusting for currency movements. In dollar terms, the price of oil in the United States is considerably higher than it was two years ago. However when priced in euros, sterling or yen, the cost is up only 10 to 20 per cent. Mr Milligan expects future oil-price surges to impact share prices of energy-dependant industries such as manufacturers, paper and packaging, and carmakers. Last month BP, the world's second-largest oil conglomerate, reported record half-year profits of US$8.6 billion, up by one fifth from a year ago. BP is the first of the world's top three oil companies to issue second-quarter results since oil prices marched to recent highs. Mr Milligan says against the backdrop of terrorist attacks in Saudi Arabia tensions might force prices towards US$50. However, even with the market currently pricing in a premium of $5 to $10, those prices are still cheap when adjusted for inflation. 'Today crude is about US$18 in inflation-adjusted terms, no higher than the peaks seen in 1990 and 2000. Oil prices would have to be above $80 to match the 1980s prices,' he says. The brokerage, which manages US$140 billion, is upbeat on equities in the US, Europe and Britain. When it comes to Asia, Mr Milligan says he is upbeat on the industrialised economies of Japan, Korea, Taiwan and Hong Kong, but neutral to negative on emerging market equities. He is also negative on international bonds and British gilts. He says statistical forecasting models show the effects of sustained high energy prices might not as bad as everyone is making out. Assuming oil prices of US$30 to $40 per barrel, the inflation rate is forecast to rise 25 basis points, leading to a minor economic drag in industrialised countries that will knock just 0.25 per cent off annual GDP growth. The impact is forecast to be greater for more energy-intensive economies of Asian or Latin American, where it could knock 0.5 per cent off annual GDP growth rates. Mr Milligan cautions investors to steer clear of the US and Japanese bond markets as rising inflationary fears could be about to take their toll. 'Inflation is emerging as a growing threat to government bond markets,' he says. 'Nevertheless, bond markets are only pricing in a return towards historically low inflation rates of say 2.5 per cent a year. Should investors become concerned that it will be higher than this, bond markets will suffer.'