Low US Inflation Lightens Dreary Economic Scene

Analysts say rate will stay low in '92, giving Fed some room to lower interest rates again

INFLATION, the economic bane of the late 1970s, appears to be well under control, in large part because of the current recession.

Most economists say they believe that when the monthly Consumer Price Index for December 1991 is released today, it will show that prices rose a modest 0.2 percent.

That means 1991 will have experienced the lowest inflation rate in the past five years, with consumer prices rising only about 3 percent.

Moreover, the sluggish economy is expected to keep inflation low, with the rate for 1992 well under 4 percent.

The Producer Price Index for December, which measures inflation at the wholesale level and which was released Jan. 9, fell 0.2 percent, bringing wholesale inflation to minus 0.1 for 1991.

Whatever today's CPI numbers are, few economists see a resurgence of inflation.

The low inflation rate comes as good news to a US public hard-pressed to find a silver lining in a recession that has eliminated more than 1 million jobs, forced many consumers to severely curtail personal spending, and helped pushed scores of businesses and some households into bankruptcy.

Inflation is not expected to be a major problem in the United States - nor most industrial nations - during 1992 or 1993.

A relatively low inflation rate is important not only because it means lower prices at the checkout stand for consumers, but because it provides breathing room for the Federal Reserve Board to make further cuts in interest rates.

The Fed last cut its key discount rate by a full percentage point on Dec. 20, 1991. Although Fed chairman Alan Greenspan recently seemed to rule out another imminent rate cut, additional rate reductions could be expected, economists say, especially if the economy remains flat going into spring.

"I see the inflation rate for 1992 running well below 4 percent," says Robert J. Eggert Sr., president and chief economist of Eggert Economic Enterprises Inc., which publishes "Blue Chip Economic Indicators," based in Sedona, Ariz.

The latest consensus among 48 economists polled by Mr. Eggert's firm is that the inflation rate for 1992 will be 3.3 percent. That contrasts sharply with the late 1970s, when inflation soared, largely the result of sharp increases in energy costs. During most of the 1980s, the inflation rate was in the more-modest 4 percent range.

Not only is US inflation under control; inflation is receding globally as an economic threat. A recent study by IDS International, based in Minneapolis, finds no significant inflation problem in the major industrial nations. In Japan, for example, inflation is expected to run around 2.3 percent this year, down from 3.3 percent last year, according to a study by Shearson Lehman Brothers Inc.

The one exception among the industrial nations is Germany. According to Steven Nagourney, an analyst for Shearson Lehman, German inflation will probably not drop below 4 percent until the second half of this year; the rate for the whole year, he surmises, will probably not fall below 3.5 percent.

To many in the US, this may seem a tolerable inflation rate. But analysts point out that 4 percent inflation is considered a serious threat in Germany, where the Bundesbank, Germany's central bank, has a distaste for price rises in general (stemming from Germany's hyper-inflation of the 1920s).

"We're anticipating US inflation of less than 4 percent - probably about 3.5 percent - for 1992," says Cynthia Latta, an economist with DRI-McGraw Hill, an economic consulting firm in Lexington, Mass. Nor is the rate expected to be much above that in 1993, she says.

A low inflation rate is an economic benefit, says Ms. Latta, since it means that "public expectations" will moderate. When the inflation rate is assumed to be high, consumers and employers seek to "build future price hikes into their plans." But the inflationary-expectations then become somewhat self-fulfilling, she says. "Inflation is not currently a threat, but that doesn't mean the inflation problem has been solved," says Gail Fosler, chief economist of The Conference Board, a business-economics grou p.

"About a quarter of the improvement in inflation stems from the food and energy sectors, where prices have been dropping. And looking at core inflation - that is, inflation less food and energy - about 40 percent of the overall decline has come from lower homeownership costs," which have dropped in part because of the impact of the recession on the housing market. But inflationary pressures in such areas as health-care and service industries remains persistent, she says.

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