“Oil is roiling the stock market again, in a way that has rarely been seen since the double-digit-inflation era of the 1970s,” writes E.S. Browning in today’s Wall Street Journal.

“But investors may be worrying about the wrong thing.”

“Despite rising oil prices, a look at oil’s role in the current service-dominated economy suggests that it isn’t the force it once was, say analysts who have studied the issue. Oil by itself doesn’t drive inflation as it did during the Arab oil embargoes of the 1970s. Only if broader inflation concerns were to materialize on top of high oil prices would oil turn into a real headache, these analysts say.”

” ‘In isolation, oil would have to go up a lot more to have the same budgetary impact it had’ in the 1970s and early 1980s, says James Paulsen, chief investment strategist at Wells Capital Management, a money-management arm of banking group Wells Fargo. ‘But one thing oil could do is rejuvenate inflation fears, just when people had gotten calm about it again.’ Broader inflation fears would be bad for stocks and bonds both.”

“On its face, oil already is a big problem again.”

“In the past nine months, as world economic demand surged and terrorism and Iraq fighting worsened supply concerns, the price of a barrel of oil has risen almost 50% — to $39.96 Friday from $27 in late September.”

“In earlier years, oil has tended to spike during Middle East tension — rising suddenly and then falling back. This time, partly because the strong economy creates underlying demand, the price has seemed to stick when it gets down to the mid-30s.”

“Higher oil prices feed inflation, raise corporate costs, hurt profits and serve as a tax on consumers and the economy. Retailers, which used to blame weather when sales were soft, have taken to blaming $2-a-gallon gasoline for keeping people home.”

“In the short run, oil prices already are weighing on stocks. Last week, rising oil together with disappointing earnings news knocked the Dow Jones Industrial Average down 69.61 points, or 0.68%, to 10213.22, despite Friday’s rise of 41.66 points.”

“But investors probably shouldn’t worry as much about oil as they used to, says Jeffrey Kleintop, chief investment strategist at PNC Advisors, the investment-advisory unit of PNC Bank.”

“In the course of a year, a $10-a-barrel increase in oil’s price would take about $35 billion out of consumers’ pockets, Mr. Kleintop calculates, based on government data. But the creation of 200,000 jobs a month over a year adds more than $70 billion — twice what oil removes. A 2% pay increase adds another $76 billion.”