Magazine article American Banker

With Fed Pondering Monetary Policy Tuesday, Economists Wonder: Where's Inflation Gone?

Magazine article American Banker

With Fed Pondering Monetary Policy Tuesday, Economists Wonder: Where's Inflation Gone?

Article excerpt

Whither inflation? The scourge of creditors and currencies was supposed to have broken out of its cage by now.

Federal Reserve Chairman Alan Greenspan, the nation's chief inflation fighter, appeared to wonder in recent testimony to Congress where it has gone. After all, the unemployment rate has for some time been running below the supposed inflationary breakout level.

Several economists, citing labor costs, warn that inflation is indeed starting to regain a foothold. They think the central bank's Federal Open Market Committee should take corrective action by increasing interest rates Tuesday.

But quite a few others cannot find clear-cut evidence of renewed pressure on prices and see no threat at home or abroad.

"Inflationary pressures remain subdued in both industrialized countries and the emerging markets," according to economists Donald H. Straszheim and John Praveen of Merrill Lynch & Co.

Global inflation is expected to average 5.1% this year and 4% next year, down from 7.9% in 1995, they said.

In this country, investors last week were startled by an unexpected uptick in the consumer price index. Still, the CPI is running at a 2.7% year- over- year rate versus a peak of 6.4% in October 1990.

"Since late 1991, consumer price inflation has been remarkably flat, hovering between 2.5% and 3.25% year-over-year," noted Mickey D. Levy, chief financial economist for NationsBanc Capital Markets, a unit of NationsBank Corp.

Meanwhile, for the last 18 months the jobless rate has hovered around 5.5%, which Mr. Levy noted is "well below earlier standard estimates of the nonaccelerating inflation rate of unemployment."

Some business economists are beginning to agree with Lester Thurow of the Massachusetts Institute of Technology that inflation may be an "extinct volcano."

Edward Yardeni, chief economist at Deutsche Morgan Grenfell/C. …

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