The Outlook: Minority View -- Inflation Won't Worsen
NEW YORK -- A forecaster doesn't have to be especially fearless right now to predict, as most are doing, that inflation will worsen considerably over the next year or so. Business-cycle history suggests it. Indicators that normally presage broad price trends suggest it. The truly fearless forecaster now is the one who maintains that inflation won't worsen markedly in coming months. There are quite a number of them around, and their thinking, however wishful it may ultimately prove to be, seems worth reciting.</br></br>It may be useful, first, to underline the considerable derring-do that a forecast of low inflation entails. It runs counter to the fact that inflation has worsened in year number three of nearly every long-running economic expansion of the past 30 years. And the reacceleration has often been pronounced. The sharpest speedup was in year three of the 1970-73 upturn, when the overall inflation rate jumped to 7.1% from 4.3% in year two. The current expansion, it should be noted, is in the middle of its second year.</br></br>A footnote: The postwar record shows that inflation has normally been milder in the second expansion year than in the first. This tendency reflects such usual early-recovery trends as above-average productivity gains, which serve to hold down labor costs, and an absence of costly bottlenecks.</br></br>Apart from the business cycle, a wide assortment of inflation barometers point to increasing trouble on the price front. Reasonably typical is an indicator compiled by Columbia University's Center for International Business Cycle Research. Reflecting such facets of the business scene as credit growth, commodity price movements and employment trends, it has surged some 17% since the expansion's start. That's the sharpest recovery rise in three decades and suggests to the Columbia analysts that prices generally will be sharply rising by late this year or early next. They foresee annual inflation rates of 8% or 9%. That would be roughly double recent rates.</br></br>Most forecasters, to be sure, are somewhat less pessimistic about the price outlook. But not by a great deal. A recent survey of several dozen forecasters by Eggert Enterprises Inc. of Sedona, Ariz., shows that on average they anticipate steadily accelerating inflation through this year and next, with the annual rate approaching 7%. That would be up from an estimated rise of 4.9% for the current quarter.