The Governor of the Bank of England, Mervyn King, has declared the "nice decade" to be over.

It might be accurate to state that the "nasty decade" is underway.

Despite a US flirtation with recession, global inflation has both accelerated and broadened over the past few months. Inflation is no longer confined to natural resource and energy prices, but has become virtually ubiquitous. The most recent UK data showed both goods and services inflation accelerating sharply, driving the retail price index index up 0.9 per cent on the month and 4.2 per cent on the year.

US import price inflation has quickened in all sectors, including consumer goods and capital goods, items that had previously been declining in price. Import prices from China and Asia, which deflated steadily in the decade to 2006, are now accelerating sharply. Even in continental Europe, where external inflationary pressures have been mitigated by a strong euro, non-oil, non-food raw material import prices are rising at an annual rate of 6.5 per cent.

In such an environment, it is unsurprising to find that businesses are more confident about their ability to increase prices. Despite reasonably severe domestic economic weakness, the US NFIB small business survey for April reported a sharp increase in the balance of respondents intending to increase their selling prices. Such readings have not been seen since 1981. Reminiscent of the 1970's, business pricing has started to behave in an atypical, non-cyclical manner, as firms raise prices even under conditions of weak domestic demand.

Outside the industrialised economies, inflation is rising at an ever-brisker pace, running faster in the developing world than in the developed. Most of the main developing economies are distinguished by a simultaneous rise in wage inflation. In general, wage and consumer inflation trends are much more closely correlated in developing economies than in the West. The quickening in Chinese CPI suggests that wages in this key economy will continue to accelerate. The most recent Chinese wage inflation data, posted in Q3 last year, rose 22 per cent year-on-year.

Unchecked wage-price spirals in developing economies offer no evidence that the demand push pressures on global resource prices might abate. The acceleration in developing economy wage costs, allied with an appreciation of the relevant currencies, creates a much less attractive relocation environment for companies in high cost, industrialised economies. Just as globalisation is now delivering a significant inflationary shock via the developing world's impact on resource prices, so the associated wage trends are starting to lessen the competitive disinflationary pressures on mature economy labour markets.

High rates of inflation are also becoming embedded into consumer psychology. Over the past couple of quarters, the percentage of US, UK and even Japanese consumers who expect inflation to average 5 per cent or more has soared to between a quarter and one third of respondents to the various opinion surveys. These are the highest readings seen since the early 1980s.

So far, there has been plenty of talk from policy-makers about inflation, but little or no action. Globally, real interest rates, which were already at historically very stimulative levels, have drifted lower as inflation has risen. In the US, they have fallen sharply. Judged on these grounds, the collective global policy reaction is supine, consisting of little more than hot air.

As such, we have no reason to expect the inflation outcome over the next few years to be much different to the outcome in the 1970s. Such conditions are difficult for investors. History shows that positive real returns can only be secured at the price of much higher volatility, with just a handful of asset classes - commodities, related equity sectors and property - delivering positive real returns.

Broad equity investments, cash and particularly bonds lose their value in real terms. Meanwhile, outside the financial markets, macroeconomic volatility is likely to rise and stagflationary interludes proliferate. Life won't be easy in the "nasty" decade.

The writer is head of asset allocation strategy at Barclays Capital.