Inflation Worries Spurred by Economic Growth Rate

THE JOURNAL RECORD, April 27, 1989 | Go to article overview

Inflation Worries Spurred by Economic Growth Rate


WASHINGTON (AP) - The government reported Wednesday the U.S. economy topped the $5 trillion mark for the first time last quarter, powered by a strong 5.5 percent growth rate that caused some analysts to express concern about rising inflation.

Even discounting for a statistical bounceback from the 1988 drought, a major factor in the overall increase, the gross national product grew at a solid 3 percent annual rate during the January-March period, the Commerce Department reported.

The stock market's response was inconclusive, with stock values drifting in a narrow range. The Dow Jones average of 30 industrials edged up 2.20 to 2,3889.11.

J. Antonio Villamil, chief economist for the Commerce Department, said the economy's performance in the first quarter ``appears to be consistent with moderate, sustainable growth for the balance of the year'' and contains no threat of a recession.

Commerce Secretary Robert Mosbacher said the growth pattern, in which the pace of consumer spending slowed while exports and business investment rose, was ``a desirable one for the sustainability of the economic expansion.''

Private analysts cautioned, however, that the report offered some troubling indications that inflation was accelerating.

A GNP index that measures prices for a fixed marketbasket of goods and services rose at an annual rate of 5 percent in the first quarter, up from 4.2 percent during the previous three months.

While half of the increase was linked to a pay raise for government employees, ``certainly it suggests we're in a period of accelerating inflation,'' said economist David Jones of Aubrey G. Lanston & Co. in New York.

Robert G. Dederick, chief economist for Northern Trust Co. in Chicago, said the economy's strong growth in the first quarter was ``too much of a good thing.''

``The report suggested that the economy was still growing at a rate too fast for comfort and the manifestation of this was in the inflation figure,'' Dederick said. ``No matter what you look at, the inflation worry is there.''

Villamil said that discounting the effects of the pay raise and recent food and energy price increases, the underlying inflation rate seems to be holding ``at a stable lower level of about 4 or 4 1/2 percent.''

The nation's total output reached an annual rate of $5.117 trillion last quarter before adjusting for inflation, the first time it had exceeded $5 trillion. After adjusting for price increases, the GNP rose at an annual rate of $4. …

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