Inflation as a State of Mind; Bernanke Says Expectations of Tame Prices Ease Recession Fears
The steep rise in oil prices in recent years has not triggered either high inflation or a recession, in large part because consumers and businesses expect price increases to remain tame, Federal Reserve Chairman Ben S. Bernanke said yesterday.</br></br>That contrasts sharply with the experience of the 1970s, when spiking oil prices combined with expectations of high inflation to fuel double-digit price increases and slower economic growth, he said in a speech to economists at the National Bureau of Economic Research Summer Institute in Cambridge, Mass.</br></br>The Fed chairman made no mention of the central bank's interest rate policy or its forecast for inflation or economic growth in coming months. He is scheduled to testify to Congress on those subjects next week.</br></br>Light sweet crude oil closed yesterday at $72.81 per barrel, up 62 cents, on the New York Mercantile Exchange, the latest stop in a choppy climb since 1998, when it was trading for less than $15 a barrel.</br></br>Yet consumer prices rose 2.7 percent in the 12 months ended in May, the Labor Department said. That is higher than the Fed would like but far less than the 13.5 percent inflation in 1980, after the 1979 Iranian revolution sent oil prices soaring.