Off topic - NYT piece on (lack of) inflation.
June 20, 1999
ECONOMIC VIEW
Despite the Fears, Inflation Still Refuses to Materialize
By LOUIS UCHITELLE
Is inflation rising in America? No, it is not. Just look at the numbers. Is it
about to start rising? That depends on whom you talk to. Wall Street
forecasters worry that it soon will, that America is still inflation-prone.
But talk to the people who compile the monthly inflation numbers. They are
singularly unconcerned.
"Over the last couple of years, we have had the best inflation picture -- the
lowest inflation rate -- since the first half of the 1960's, and there is no
evidence of any change coming in that situation," said Patrick Jackman, chief
of the division at the Bureau of Labor Statistics that puts together the
Consumer Price Index.
The index jumped 0.7 percent in April -- scaring Wall Street but not the
public, according to the University of Michigan's weekly consumer surveys
-- and then fell back to a zero increase in May. All of the odd circumstances
that pushed inflation up in April disappeared in May. And the June data
collected so far by Jackman's people suggest that inflation this month will
turn out to be similarly mild.
"The only concern for June lies in higher fruit and vegetable prices because
of a drought in many parts of the country," Jackman said in an interview.
Alan Greenspan, chairman of the Federal Reserve, made a similarly sanguine
prediction last Thursday, the day after the May C.P.I. figure was released.
"For the period immediately ahead," Greenspan told Congress, "inflationary
pressures still seem well contained."
So why all the hand-wringing? Why all the talk of raising interest rates to
head off inflation, when the inflation rate is not rising and shows no sign of
starting to do so?
Plenty of reasons are offered, of course: tight labor markets, strong
economic growth, an overexuberant stock market, incipient recoveries
elsewhere in the world and that old standby, mothballed for months: a need to
strike pre-emptively to minimize a future inflationary surge.
"A stitch in time saves nine," said William Dudley, director of domestic
economic research at Goldman Sachs, invoking a favorite Wall Street
metaphor to justify a pre-emptive rate increase by the Federal Reserve.
Rarely in recent years, however, has inflation seemed less threatening.
Consider the April surge. Gasoline prices accounted for half the reported
increase, and they rose mainly in response to fears that the oil-producing
countries would cut back production. But the expected shortages have not
materialized. Gasoline prices rose only slightly in May, and initial surveys
show that they have fallen in June, Jackman said.
The rest of the April rise in the C.P.I. -- the only significant increase in
months -- came mainly in prices of tobacco, apparel and hotel lodging.
Cigarette makers discounted prices in March and then removed the discounts
in April, a standard off-and-on marketing practice. In apparel, an early Easter
brought discounts in March and a rebound to standard prices in April.
Women's clothes were discounted in May, Jackman said, and men's clothing
prices are usually cut after Father's Day. "July, you are discounting
everything," he said.
Seasonal adjustments were largely responsible for the lodging spike.
Jackman's people generally expect hotel and resort rates to fall in April, as the
winter vacation season ends, and to rise again in June for the summer
season; these expectations are built into the C.P.I. pricing formula. But the
industry is pushing on-season and off-season prices closer together. Until the
old formula can be updated, it will produce artificial price "changes" in some
months.
And so it goes. Are there shortages of goods or services, given the strong
consumer demand? Not at all, the data indicate. Are prices rising for imports,
a big source of inexpensive goods? No. Excluding oil, import prices fell
significantly in the first five months of the year.
Take another tack. Argue that the C.P.I. cannot continue to rise so slowly --
at an annual rate of only 2.1 percent through May -- when the economy is
growing so strongly. But here, too, illusion plays a role.
The Bureau of Labor Statistics has been making its method of calculating the
index more accurate and applying it to figures dating back to 1995. When and
if the improvements are extended further back, annual inflation in earlier
years will be revised downward by 0.4 percentage points, according to an
article, soon to be published, by two of Jackman's staff economists.
So the fall in inflation since 1995 isn't as sharp as the unadjusted figures now
make it appear. If the inflation rate were measured in the old pre-1995 way, it
would be closer to 3 percent, said Alan Blinder, a Princeton economist, and
we would say inflation has been stable since 1994.
Since the inflation rate is used to determine the nation's economic growth
rate, the perspective has to be fixed there, too. When that happens, today's
growth will not seem so strong relative to the past.
Still, a small rate increase when the Fed's policymakers meet on June 29 and
30 may well be good strategy for other reasons, like calming nerves, or
taking some of the bubble out of stock prices, or satisfying expectations on
Wall Street. But invoking inflation -- even not-so-imminent inflation -- as
justification for a rate increase does not wash.
Copyright 1999 The New York Times Company |
