NCPA - National Center for Policy Analysis

Prices May Begin Rising

November 6, 1997

The price index for domestic output rose at an annual rate of just 1.4 percent in the third quarter 1997 -- the lowest inflation rate since 1964. When the volatile food and energy components are taken out, prices rose by a mere 1 percent.

Some economists, however, think inflation is understated and will begin accelerating soon.

  • They cite factors ranging from a strong dollar and stable health costs to changes in the way the price index is calculated to buttress their argument.
  • Also, a 3.5 percent annual growth rate in the third quarter is 1 percentage point above what some economists contend is sustainable without creating shortages and bottlenecks in production.
  • The wary-of-inflation crowd contends that health insurance premiums will soon be increasing big-time -- a substantial component in the price index for a nation which devotes one dollar in every eight to health care.
  • While the latest figures show computer prices falling by nearly 30 percent annually, some economists are looking for a return to a long-term trend rate of 15 to 20 percent -- a move which would produce less of an offset to prices rising elsewhere.

Not all experts buy into the theory that prices will soon rise. They believe that economic stagnation in Japan, competitive currency devaluations in Southeast Asia and a world-wide glut of manufacturing capacity in autos, petrochemicals and electronics will keep a lid on prices.

Source: Peter Passell, "Some Experts Say Inflation Is Understated," New York Times, November 6, 1997.


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