Greenspan Not Worried About Rise in Prices

Federal Reserve Chairman Alan Greenspan said today that while he was surprised by certain aspects of January’s sharp jump in consumer prices, he was not worried that inflationary pressures are accelerating.

Greenspan, appearing to present the central bank’s semiannual report to Congress, was questioned at length about his views on inflation in light of Wednesday’s government report that consumer prices shot up by 1.1% in January, the biggest monthly increase in seven years.

The January increase translated into an annual rate of 14.1%.

Sen. Donald W. Riegle Jr. (D-Mich.), chairman of the Senate Banking Committee, asked Greenspan whether such a sharp jump in prices would force the Fed to change its new forecast that consumer prices will rise by between 4% and 4.5% this year, slightly lower than last year’s 4.6% increase.

Greenspan said that he felt comfortable with the Fed’s forecast although he conceded that some of the specific components of the January price surge were surprising.

“As best as we can judge, while the rate of inflation is higher than we would like, there is no evidence that it is accelerating,” Greenspan said. “While I did not like the statistic published (Wednesday), it did not give me any great concern.”

In his prepared testimony, Greenspan repeated comments he made Tuesday that he believed a reversal in the sharp January jump in prices is under way. He cited evidence showing that price increases in the last half of 1989 were “appreciably lower” than in the first six months of the year.

Greenspan said the Fed expects the economy to be sluggish this year, growing at an anemic rate of 1.75% to 2%. That would be the weakest performance since 1984 and far below the Administration’s expectations for the year.