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Some Experts Say Inflation Is Understated
According to a report in the November 6th issue of The New York Times, current measures of inflation are artificially low and the present low rate of inflation may end soon. The report, which was written by Times business journalist Peter Passell, appears on page D1.
On first impression the latest data on economic growth and inflation appear to indicate strong growth (a 3.5 percent annual growth rate in the 3rd quarter) and an annual inflation rate below 2 percent. But there are indications that the inflation rate may not stay at an historic low level for much longer, according to the Times. Medical insurance premiums, which had been rising rapidly, have recently been rising at roughly the cost of living. But profits at HMOs have rapidly fallen. Outputs of goods and services may not continue to grow as fast as wages. The depreciation of Asian currencies and an appreciation in currencies elsewhere will likely give American producers some room to raise prices.
Other economists are worried about the data quality of economic indicators. They note that it is difficult to measure deflation in economic areas like the personal computer industry. And purely technical changes in the way the U.S. Bureau of Labor Statistics assays prices have cut the measured rate of inflation by half a percentage point. Finally, Economists generally hold that when unemployment falls below a certain level, competition for workers will be begin to push up wages and prices. For these reasons, several Economists interviewed by the Times feel inflation is higher than the Government's published rate and will increase in the near future.