Newspaper article The Christian Science Monitor

Zero Inflation in US Is Really Deflation

Newspaper article The Christian Science Monitor

Zero Inflation in US Is Really Deflation

Article excerpt

ROBERT EGGERT'S latest survey of 50 top economic forecasters points to continued slow growth and modest inflation ahead in the United States.

Real national output this year will increase 2.6 percent from 1992, and 1994 gross domestic product (GDP) will rise 2.7 percent, according to the consensus compiled by Blue Chip Economic Indicators, Sedona, Ariz. That's one-tenth of a percentage point higher for 1993 from the August survey, largely because of an upward revision in GDP data late last month. And it's down one-tenth of a point for 1994. Economists are concerned about the psychological and economic impact of the Clinton tax and spending changes and the business doldrums in Europe and Japan, explains Mr. Eggert, editor of the publication.

This consensus forecast squares with the view of Robert Forrestal, president, Federal Reserve Bank of Atlanta. He expects GDP to grow a real 2.5 percent this year and inflation, measured by the consumer price index, to increase 3 percent. The Blue Chip inflation forecast is 3.1 percent.

"This is not an ebullient forecast, but a positive one," Mr. Forrestal notes in a telephone interview. Forrestal is regarded as one of the "doves" on the Federal Open Market Committee (FOMC), the body of seven Federal Reserve governors and 12 regional bank presidents which sets the nation's monetary policy. He wasn't among those FOMC members sounding the alarm bells last spring when there was a short-lived burst of higher inflation. That's when the FOMC decided on a "bias" for higher interest rates to stamp out an acceleration in inflation, should it occur.

Price stability and low inflation are the "primary goal" of the Fed, Forrestal says. No central banker could say less.

With both economic output and inflation lower this summer than most economists predicted, interest rates have declined, not risen. Forrestal's dovish position was more accurate from a forecasting standpoint. His position also reflects his concern about the social cost of an attempt to move rapidly to zero inflation and a suspicion that the CPI exaggerates real inflation.

Forrestal sees no legal impediment to the Fed seeking zero inflation by boosting interest rates and slowing growth. …

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