Inflation has been the great villain of the American economy for decades - wreaking havoc on family budgets and challenging businesses large and small.
But despite more than six years of economic expansion, there are signs that inflation in the United States- already historically low - continues to fall, prompting economists to wonder: Is the Darth Vader of finances dead - or merely in deep hibernation?
Prices on food, used cars, and energy are dropping. Overall, retail store prices have slipped by 0.5 percent so far this year. The trend has some economists talking about zero inflation and even "deflation." If this happens, interest rates on everything from mortgages to auto loans will fall. Prices of existing bonds will rise. And an employee's wage hike would be "real," not just a catch-up increase to offset the inflation rate.
Some observers already see a change in public psychology in regard to inflation. "The only thing Americans believe is going up today is the price of common stocks," says Paul Kasriel, chief economist, Northern Trust Company, Chicago.
Economist Lawrence Kudlow says there's a "good chance" that inflation will fall to a 1 percent annual rate in the next 12 months.
The consumer price index (CPI), the most common inflation gauge, has risen at only a 1.4 percent annual rate this year, versus 3.3 percent for all of 1996.
If the CPI overstates actual inflation by 1.1 percentage points, as a Senate study found last year, then zero inflation is a possibility.
Nor, apparently, does the Federal Reserve regard inflation as an immediate threat. It did not raise interest rates at a policymaking meeting last week.
DESPITE such trends, most economists - including Mr. Kasriel - have been expecting rising inflation.
Only 3 percent of a panel of 36 corporate economists agreed last winter with the statement, "Inflation is dead."
The consensus of these National Association of Business Economists' forecasters called for 2.9 percent inflation in consumer prices this year, 3 percent next year.
Low unemployment (5 percent in June) and rapid economic growth (a 5.9 percent annual rate in the first quarter) are commonly regarded as two ingredients in the recipe for accelerating inflation.
But the CPI hasn't been following traditional wisdom. Even the prices of services, usually tagged as the "bad boys" on the price scene, have climbed at only a 2.7 percent annual rate, notes Richard Hokenson, economist for the New York investment firm Donaldson, Lufkin & Jenrette Securities Corp. He sees deflation as "increasingly a reality."
Producer prices have been declining at an annual rate of 3.9 percent so far this year.
The primary reason for low inflation, according to Mr. Kudlow, of American Skandia Life Assurance Corp., Shelton, Conn., is that the Fed has done "a good job." It has not fed the economy more money than people want to spend or put into savings, thereby restraining prices.
Also, international competition has helped keep US prices down, other economists say.
Michael Calabrese, an economist at the Center for National Policy, a Washington think tank, sees a favorable demographic factor behind today's benign inflation: The crest of the baby boomer wave is reaching an age when its members are saving more, and they are entering their most productive work years.
Employers have also been able to bring more people into the labor force, Mr. Calabrese says. This keeps down bidding wars between companies for workers.
Early retirees and welfare recipients have been getting jobs. The percentage of men age 25 to 54 in the labor force has risen. Men age 55 to 64 have been postponing retirement. Overall, 67 percent of adults are participating in the labor force, an all-time record.
"Inflation will stay fairly stable and not accelerate even if unemployment goes down further," says Calabrese.
But that is not a universally held view. Inflation is "starting to creep up, much as it did in the mid-1960s," Mr. Kasriel says. As evidence, he notes that the "core" CPI - consumer prices minus food and energy - is moving up faster than the index itself. "We have reached the trough" on prices, he says.
"The issue of inflation is far from dead," maintains Stephen Roach, chief economist of Morgan Stanley & Co., a Wall Street brokerage house.
Economic history, he says, shows that when an "inflationary threshold" is broken, inflation accelerates after a five-quarter lag. That threshold was passed in the last quarter of 1996, he says.
Economist Joel Prakken notes that employee compensation per hour began picking up 2-1/2 years ago, just as his mathematical model of the economy predicted. But so far business has not passed as much of this extra cost on to consumers in the form of higher prices as he had figured.
To some extent, the inflation controversy reflects a broader debate about change in the economy.
Kudlow sees the nation in a "new era" as a result of the end of the cold war, smaller government, lower taxes, less regulation, freer trade, and new technology.
Calabrese suspects the economy is in a "virtuous cycle." Low unemployment prompts employers to train more workers. This, in turn, means a more-skilled work force that helps keep productivity up and inflation down.
But other economists are skeptical that change is so fundamental. "The jury is still out," says Mr. Roach. "I have been through a lot of new eras," adds Kasriel.