US inflation plunges in '82; likely to stay low
Boston — Americans shouldn't expect a repeat of last year's 3.9 percent inflation rate in 1983, most economists agree; but people don't need to worry about a return to double-digit inflation any time soon, either.
In part, 1982's surprise showing on inflation reflected a weak economy and declining interest rates. But it also partly represented a fundamental change in the so-called underlying or ''core'' rate of inflation, economists say.
''You're seeing both things at work here,'' says Robert Gough, an economist at Data Resources Inc., a Lexington, Mass., consulting firm. ''Keep in mind that some of the weakness in '82 was due to weakness in the housing market. And that's not going to continue. Interest rates are going to keep coming down, bringing people back into the housing market, and pushing up prices again.''
The effect of rising housing prices, however, may not play as big a role in 1983 as in the past. Under a newly adopted formula, the housing component of the consumer price index will be changed to put more emphasis on rents. If that had been done in 1982, a Bureau of Labor Statistics official says, the inflation rate would have been 5 percent instead of 3.9 percent.
Energy and food prices, two other major factors in inflation, will continue to moderate, Mr. Gough says, as long as supplies are higher than overall demand, an area where he sees ''no change soon.''
Another vital ingredient that could make a major contribution to keeping inflation down is unit cost per hour of work, notes Geoffrey H. Moore, director of the Center for International Business Cycle Research at Rutgers University. With wage increases slowed and productivity in some industries improving, this ingredient is beginning to make a ''small'' improvement, he says.
The continuing weak economy should help keep prices down another year or so, says Allen Murray, a Citibank economist. ''There is so much slack in the economy ,'' he notes, ''so much unemployment, and so much unused factory operating potential, that I don't see prices increasing much before late 1984 or 1985.''