Cooling Off Inflation

When some of Richard Nixon's Wall Street supporters recently presented him with a two-foot-high stuffed bull, the President reiterated that "I think next year is going to be a very good year." Then, with the election well in mind, he added: "It better be." One happy sign is already clear this year: the Administration is at last making progress against inflation. For the year's first quarter, the consumer price index advanced at an annual rate of only 2.7%, which was less than half the pace that it maintained last year, and the lowest rate since inflation rolled into high gear in 1967.

The major causes of this progress were a marked decline in mortgage interest rates and a dip in automobile prices as dealers discounted heavily to get sales going fast after the General Motors strike. On the other hand, services continued their steady march upward (except for the mortgage rates, which, like other non-goods, are considered services). Food prices rose more than usual for the early part of the year. Considering that they might be forced higher by an impending corn blight and the drought in the Southwest, and that neither mortgage rates nor auto prices are likely to fall further, few economists are as yet convinced that the price steadiness will be maintained for the year as a whole.

Enough Slack. Business is gradually getting better, and there is much question about whether the current economic expansion will start a fresh round of inflation. The President's Council of Economic Advisers figures that there is still enough slack in demand and production to prevent prices and interest rates from jumping sharply (although short-term rates have hit bottom and have risen a bit lately). Thus, the Administration remains opposed to framing a firm incomes policy, which would include wage-price guidelines. It also has not developed a policy to deal with a major event that will significantly influence the economy later this year: the steel labor negotiations. No decision has been made on whether to accept a strike, in hopes that it might slow down wage-push inflation, or avoid a strike at all costs, lest it badly damage the economic recovery.

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