FEDERAL Reserve Board chairman Paul Volcker has never been one to sit around indifferently during a period of rising prices. Rather, Mr. Volcker - perhaps more than anyone else in Washington - has led the fight against inflation. Now Mr. Volcker, as he did before Congress recently, is again reminding Americans of the need for vigilance against a renewal of inflation. Volcker is right, underscored by the sharp rise in the January consumer price index, as well as the latest unemployment figures for February, both of which show the economy continuing strong.
The January consumer index surged 0.7 percent. Granted, the Labor Department is using a revised index, to take account of changes in consumer spending during the 1980s. But what makes the January figures so striking is that, had they been calculated under the old index, the increase would have been even higher - 0.8 percent.
The January figure was the largest monthly increase since 1982. If continued for 12 months, it would work out to an inflation rate of over 8 percent. For 1986, inflation was slightly over 1 percent.
Meanwhile, the latest unemployment statistics - with the civilian jobless rate remaining at 6.7 percent in February - point to an economy that is somewhat stronger than some more recent indicators, such as weakness in orders for factory goods, had suggested. Many economists now believe that interest rates will not drop much further during the weeks ahead and could, in fact, even climb.
Admittedly, the outlook for the economy is somewhat open to interpretation for the moment. Still, a consensus appears to have emerged among many economists that the inflation rate will likely climb during the year, probably to about 3 percent, and perhaps, as the National Association of Business Economists reckons, to the 4 percent range.
A number of factors explain the increase: Energy costs are scooting upward; increases in prices of imports (linked to the falling dollar) allow American manufacturers to boost prices of domestic goods; housing and food costs are up.
The upshot is that the Federal Reserve, which controls the nation's money supply, should be prepared to act vigorously, if necessary, to curb inflation. Interest rates are relatively low, compared with the first part of this decade. The money supply has been increasing at significant rates. Thus, the Federal Reserve Board has room, if required, to tighten the money pipelines slightly.
The lesson of the late 1970s must not be forgotten. It is better to keep inflation under control while it is relatively easy to do so.