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It now seems unarguable that the ogre of inflation is back. Time, therefore, to consider some of the less obvious implications. Let us begin with pension funds.
Like many people, I confess I had rather taken my eye off the pensions issue lately. Stated deficits were mostly down last year and inflation tends to reduce them again by raising the corporate bond rate at which liabilities are discounted.
Also, deficits are a problem specific to defined benefit schemes. And these - surely - are now a dwindling force, as they are closed or sold.
Wrong on all counts, it seems. For a start, the actuary Watson Wyatt reckon that of the world's $25,000 billion (Dh91,950 billion) in pension funds, about half is still in defined benefit schemes. It expects the value of those schemes to increase by about five per cent annually for some years. This is because, even if closed to new members, they can still grow as they mature.
As for inflation, it cuts both ways. The double A corporate bond yield, used as the discount rate under accounting rules, is, of course, rising. However, the rate used by actuaries - and in the UK, the regulator - is that of Treasury bonds, which has fallen sharply since the onset of the credit crisis.
It is the actuaries (or the regulator) who decide how much cash a company must put into the fund. As Karen Olney of Merrill Lynch puts it, the double-A-based accounting measure is universally regarded as meaningless, with the significant exception of the ratings agencies and - by extension - some investors.
Equally important, pensions in some countries - such as the UK - are generally inflation-linked to some extent. The actuary Lane Clark & Peacock calculates that for a typical UK fund, a rise in the retail price index from 2.5 per cent to 4.5 per cent means that cash contributions have to rise by 30-50 per cent.
This may or may not be fully offset by the rise in the discount rate. If not, there is an obvious threat to dividends.
Merrill Lynch says that, among FT EuroFirst 300 companies, nine in the UK pay contributions bigger than the dividend. In continental Europe, nine pay more than three times as much. In the UK, at any rate, the regulator has made it clear that contributions now take precedence over the dividend payment.
In the US, corporate pensions are not normally protected against inflation. Yet, about two-thirds of public sector pensions have protection of some kind, according to Merrill's Gordon Latter. That matters, because it adds $2,700 billion to the funds seeking inflation-proofed assets, which are in critically short supply as it is.
Let us consider such assets in more detail. Inflation-linked Treasury bonds offer a pitifully meagre return - indeed, a negative one at the short end.
Another option, as discussed in this column before, is commodities or resource-based stocks. As to whether we are in a bubble here, take your pick - though it is worth noting, as Citigroup pointed out last week, that outperformance by mining stocks is now miles ahead of telecommunications, media and technology stocks over a similar period in the dotcom bubble.
Then there are infrastructure funds, which are taken to offer inflation-proofed cash flows. As also discussed here before, there are two problems with those.
First, there is too much cash looking for too few infrastructure assets.
Second, if a country's voters refuse to pay for a motorway with their taxes, it does not follow they will indefinitely accept rising tolls instead.
Perhaps there is a simpler answer staring us in the face. Until the bull market broke in 2000, it was generally believed that the best proxy for rising prices and wages was equities as a class. Ever since, the bull market in bonds has produced a rash of arguments to prove bonds are the asset of choice instead. But if inflation really is back, that bull run is over. Time to go back to square one?
That is not an easy call. For a start, companies with large pension liabilities - regardless of how well funded, ostensibly - would need to be avoided.
More basically, inflation is bad for profits. As Warren Buffett said in 1982, it acts as a gigantic tapeworm, consuming ever more cash to pay for the same amount of investment, inventory and receivables.
It also makes economies less stable, disrupting corporate cash flows and making pension contributions more burdensome. So though equities may be part of the answer, they are scarcely a complete one.
One thing seems clear, though. A year ago, it could have been argued that the damage done to pensions by the equity bear market of 2000-03 had been essentially contained. It now looks more like the prologue to the drama proper.
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