Down, not out
AFTER the double-digit US inflation rates of the late 1970s, the current rate -- expected to hold in the 4 percent range for all of 1985 -- must be considered a remarkable achievement. Compared with rates in many industrial nations, the inflation level in the United States remains impressive, as underscored by the announcement in Washington this week of only a modest upward inching of inflation during January.
Americans, however, cannot afford to become complacent about their nation's overall inflation rate, nor about the need to take steps to ensure that the recent hard-won gains against inflation are maintained.
The overriding economic policy goal for the US should be sustained economic growth that translates into real improvements in personal living standards for all Americans. Too often in recent years, inflation has been allowed to gather a momentum of its own, presenting -- through perpetual annual wage increases and spiraling property and land values -- a faade of improvements in living standards without the substance of genuine improvements.
As pointed out earlier this month by the bipartisan Committee to Fight Inflation, ``neither congratulations nor complacency are warranted'' in the ongoing battle against inflation. The committee is headed by former Treasury Secretary Henry H. Fowler and former White House economist Herbert Stein. As the committee notes, the current inflation rate is low compared with recent years and compared with existing rates in some European nations; but it is still ``well above the average rate -- 1.5 percent -- that prevailed between the Korean War in the early 1950s and the outbreak of the Vietnam War in the middle 1960s.''
``A 4 percent inflation rate cuts the purchasing power of the dollar in half in less than 18 years,'' the committee points out. ``It is high enough to be deeply troublesome to individuals, businesses, and government, and to do enormous continuing damage to [the US economy and] society; and it should not be considered acceptable by . . . elected officials or by the public.''
What needs to be kept in careful perspective is that the current ``low '' inflation rate has in large part resulted from ample food and energy supplies. But many economists are already suggesting that such surpluses may not continue throughout the rest of the decade. Energy use, for example, is rising throughout the industrial world as the economic recovery continues. Moreover, the Federal Reserve Board's remarkable resolve in seeking to slow the rate of increase in the nation's money supply since 1979 has also helped reduce inflation. If the enormous US federal budget deficits, in the range of $200 billion and more, are not substantially reduced, powerful political pressures may eventually force the Fed to pull back from its tight-money policies to help offset the government's debt burden.
Obviously the ``inflation challenge'' is not going to be resolved by simplistic solutions. The battle, and it is just that, must be waged day in and day out. But some steps seem obvious:
The federal government must continue to make regulatory reforms that help reduce costs of production throughout the economy. Further, protectionist measures that prop up the price of US goods -- while inviting retaliation against US products abroad -- should be avoided. Businesses should hold down price increases as much as possible. Henry Ford found that by lowering prices he could sell more cars -- and Ford's unit production costs sank even as profits soared. Labor should continue to exercise restraint on the wage front. Consumers, too, have a responsibility: to refuse to pay excessive prices for products that are clearly overpriced.
In short, there is plenty for all to do to continue the downward pressure on inflation. ------30--{et
