Economists Differ on Whether Inflation Is Under Control

Inflation has once again sent jitters through the financial markets. But has it actually made its way to the nation’s supermarkets, dry cleaners, gasoline stations and restaurants?

Most economists aren’t convinced.

“We’ve seen a bottoming out of inflation. (But) we’re not in for a new inflationary spiral,” said Sandra Shaber, a consumer economist for The Wefa Group, a Pennsylvania economic forecasting firm.

Concerns about inflation heightened in May after the government reported a greater-than-expected rise in consumer and wholesale prices during April. That hurt stock and bond prices and drove up interest rates and prices for gold, which is seen as an inflation hedge.

Economists called the market reaction overblown, noting that bad weather was partly responsible for the higher prices, particularly with fruits and vegetables. They said little had changed to portend higher inflation.

“Basically, we’re in a deflationary world,” said A. Gary Shilling, who heads a New York economics firm bearing his name. “There’s a recession in Europe, and Japan is mired in a decade of restructuring.

“The U.S. economy is dragging. . . . It’s not an inflationary environment,” he said.

The Federal Reserve--which helps determine economic growth by navigating the direction of short-term interest rates--also appears unconvinced that inflation is about to get out of control.

But the Fed may be forced to raise rates, which had fallen to 20-year lows recently, should there be more evidence that the economy is expanding and prices are rising.

The central bank has managed to keep the consumer inflation rate in check since the beginning of the 1980s, when it averaged 12.5%. The highest level inflation ever reached in the United States this century was 20.4% in 1918, during World War I, the Bureau of Labor Statistics says.

In fact, the inflation rate has stood below 5% for every year in the past 10 years, except for 1990, the start of the most recent recession and the year of the Persian Gulf War.

Based on the latest government reports, inflation for the first quarter was rising at a 4.3% seasonally adjusted annual rate, up from 2.9% for all of last year.

But leading economists still forecast only a 3.2% rise in consumer prices for 1993 over last year, according to the most recent survey conducted by Blue Chip Economic Indicators, a Sedona, Ariz., newsletter. The Blue Chip group also predicts the economy would grow at a 3% pace.

Still, others aren’t satisfied inflation is under control. They point to the so-called hidden inflation that people confront every day and the government doesn’t track in its Consumer Price Index, which measures changes in the price of a fixed basket of consumer goods and services.

“You talk to 10 people you know and seven out of 10 will tell you their expenses are increasing faster than their income,” said Albert Sindlinger, heads of Sindlinger & Co., a Wallingford, Pa., economic research concern.