Inflation Slowdown

One of the most worrisome threats to the budding economic recovery--and to U.S. living standards--was the sudden resurgence of double-digit inflation in June and July. Last week, though, the Labor Department had some good news for Americans. It reported that the rise in the Consumer Price Index slowed radically to an annual rate of 2.4% in August, from 15.4% the previous month. Retail food prices, which had shot up in early summer, did not rise at all in August. The purchasing power of the average worker's paycheck was 1.1% higher than in August 1974, marking the first time that real spendable income exceeded a year-earlier figure since February 1973.

Unfortunately, the extra-slow pace of August price boosts is no more likely to continue than was the earlier super-rapid rate; both were distorted by the erratic timing of food-price movements. Nonfood portions of the CPI are still rising at an annual rate of 6% to 7%, indicating that the underlying rate of inflation has not changed much. In September the index as a whole is likely to rise more than in August, though scarcely back to the double-digit range. At the least, though, the August figures give weight to the Ford Administration's argument that the scary inflation pace of early summer was an aberration, and might calm nervous consumers and investors. Indeed, the stock market, after falling to 795 on the Dow Jones industrial average--close to its summer low--rallied late last week to end Friday at 830.

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