Inflation's decline -- its impact on wage-earner, taxpayer, investor
The sharply reduced inflation rate the United States is now enjoying will have a pronounced effect on consumers' pocketbooks and bank accounts, economists say.Skip to next paragraph
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While it lasts, the lower inflation will cut individuals' tax bills, boost the value of pensions and wages, and sweeten the return on savings and investments.
''Taxpayers, people on fixed incomes, investors, and workers are all beneficiaries of the lower rate of inflation we now enjoy,'' says Martin Feldstein, chairman of the President's Council of Economic Advisers.
Of course, lower inflation does not help everyone. For instance, some individuals have purchased homes, expecting prices to keep rising rapidly. They were hoping to repay loans with cheaper, inflation-eroded dollars.
''It is basically (borrowers) who might suffer'' from a sharp reduction in inflation, because their investments won't rise in value as fast as they expected, says Ted Gibson, senior economist at Crocker National Bank in San Francisco.
Reduced inflation was evident in March, when consumer prices rose only one-tenth of 1 percent, after adjustment for seasonal factors. During the first three months of the year, prices were rising at a rate of four-tenths of 1 percent, the slowest climb for any quarter since 1965.
Individuals are starting to adjust to the reduction in inflation. The perception of more stable prices ''is beginning to sink in,'' says Sandra Shaber , senior economist with Chase Econometrics, a economic forecasting firm.
One sign of this awareness is that consumer confidence jumped in March by the largest amount in nine years, according to the Conference Board, a business research organization.
And not only were consumers more confident about their present economic conditions, but their expectations for the future were at the highest level in the survey's history. For example, some 23 percent of the 5,000 households surveyed thought their family incomes would rise in the next six months.
For the year as a whole, however, lower inflation is not likely to help real, or inflation-adjusted, household incomes as much as it has in the past couple of months. ''We know that zero inflation cannot last forever,'' President Reagan told a news conference Friday.
Economists agree. ''The current numbers probably understate the underlying inflation rate,'' Mrs. Shaber notes. The current consensus among forecasters is that inflation will rise about 3.5 percent for 1983 as a whole.
One reason the inflation rate will climb somewhat is that energy costs will probably rise somewhat, says Crocker Bank economist Gibson. The imposition of a 5-cent-a-gallon increase in federal gasoline taxes in April and an end to the rapid decline in world oil prices will edge energy prices upward, he says.
And food prices have already started to climb because of bad weather in crop-production areas in California. In March, food prices rose six-tenths of 1 percent, the biggest increase among the seven major price categories the government tracks.
The government's program to pay farmers for not planting crops ''is going to have an effect on food prices six or nine months down the road,'' adds Robert Wescott, an economist at Wharton Econometric Forecasting Associates.