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I am beginning to worry that Mervyn King is becoming somewhat sanctimonious in his old age. Every time something goes wrong in the economy, there is Mr King telling everybody "I told you so".

But you have to have a certain sympathy for him. In the 18 months leading up to the liquidity crisis, Mr King had been consistently warning banks about the dangers of complex credit instruments and the underpricing of risk. Did the banks listen? No. Was he right? Yes.

For the past five years, Mr King has been warning us that the Nice economy was coming to an end. Non-Inflationary Continuous Expansion could not be sustained for ever, he said. Did we listen? No. Was Mr King right? It appears so.

This quarter's inflation report from the Bank of England makes sombre reading. Once again the Bank is troubled that the dilemma it faces - rising inflation and declining growth - has become still more acute. In February, the main problem was the further deterioration in the credit markets and the risks to growth. Over the past three months, inflation has become the major concern.

Indeed, the speed at which the short-term prospects for inflation have worsened is remarkable. And, worryingly, the cause of most of this deterioration comes from the global economy and, thus, lies well outside the Bank of England's control.

Back in November, the Bank's forecasts were suggesting that there was a roughly even chance that consumer price inflation would rise above 3 per cent and that Mr King would again have to write to an open letter to the chancellor of the Exchequer. But most commentators thought that the Bank was being rather pessimistic - if not indulging in out and out scaremongering.

By February, the Bank's forecasts suggested that it was more likely than not that Mr King would have to write his letter to Alistair Darling. Most commentators accepted that such a letter would probably have to be written, but the spike in inflation would prove short lived and should not have a material impact on the Bank's conduct of policy.

Now these forecasts look far too optimistic. The rate of consumer price inflation has already jumped from 1.8 per cent to 3 per cent in just seven months. The Bank's forecasts are suggesting that there is a significant risk - about 1:4 - of the inflation rate rising above 4 per cent. It would appear that Mr King will be kept busy over much of the next 12 months writing letters to the chancellor.

The cause of this sudden turn round lies in world commodity prices. In oil markets, prices are running some 25 per cent higher than they were three months ago. The rise in wholesale gas prices is even sharper, at around 40 per cent. These increases must place additional upward pressure on household energy bills and petrol prices later in the year.

Whether these higher wholesale prices will persist is, as ever, uncertain. But worryingly, although there is some evidence of speculation driving prices higher, the market has been largely driven by basic supply and demand factors. Opec producers have not raised their oil production quotas significantly since 2005, while non-Opec supply has been consistently weaker than expected by international energy organisations. Meanwhile the rapid growth of the emerging economies, most notably India and China, has inevitably increased demand. China, for example, has accounted for around a third of the increase in world oil consumption since 2005.

A similar pattern affects world prices for foodstuffs. Poor harvests in 2007 in North America, Europe and Australia have had a substantial downward impact on the supply of food. Meanwhile, higher standards of living in the emerging economies have raised demand. Global food prices have risen by 5 per cent in the past three months, with much sharper rises in price for some commodities, notably rice and wheat.

But in many ways the Bank is optimistic about the prospects for inflation. While it remains concerned about the risk that higher price inflation will lead workers to press for higher wage increases, the Bank's forecasts assume that this does not happen. There are two factors lying behind this optimism. First, the consistent trend of the past 10 years which has seen earnings rising modestly despite steady growth in output and relatively tight supply constraints within the labour market. Secondly, the pressure on wage bargainers from the now inevitable slowdown in growth, and rise in unemployment, over the coming year.

So, by the end of next year, the economy looks as though it will be back to normal. Inflation will again be at, or possibly even below, its 2 per cent and the growth rate will be back at its trend rate of 2.5 per cent. But the Bank's scope for introducing alleviating measures if further mishaps befall the economy, is becoming decidedly limited.

Peter Charles is chief economist of Mortgage Express