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发表于 2012-4-21 20:54:06
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Inflation: Myth and Reality
By Laura D'Andrea Tyson
Published: April 15, 1994
Fears of accelerating inflation have haunted the financial markets just at the time when the economy has turned in its best inflation performance in decades.
In 1993, the core indexes of consumer and producer prices (which exclude food and energy) registered their smallest gains in 20 years. Favorable trends are continuing this year: the annualized increase in the core Consumer Price Index over the past three months was 2.9 percent, the same as over the 12 months beginning in March 1993.
The Administration, like most private forecasters, predicts an uptick in inflation in 1994, as continued growth raises the utilization of industrial capacity and reduces unemployment. We certainly recognize the critical need to remain vigilant against inflation. The building blocks for a sustained expansion -- smaller Federal deficits, stronger business balance sheets, improvements in productivity, robust investment -- are in place. It would be a missed opportunity if the expansion suffered a premature end as a result of accelerating inflation.
So far, however, there are few signs of changes in the underlying causes of inflation. Rather, the financial markets appear to be reacting more to inflation myths than to realities.
Myth No. 1: Inflation can spike upward suddenly. Some commentators contend that inflation can strike at a moment's notice. History suggests otherwise. Since 1957, the first year for which core Consumer Price Index data are available, there have been only nine years in which the inflation rate increased by more than half a percentage point.
Five were oil shock years: 1973, '74, '79, '80 and '90. Oil prices can dramatically affect overall prices: core inflation jumped six percentage points from '73 to '74, and the '79 oil shock raised core inflation by nearly three percentage points in one year.
Since 1957 there have been only four years when there was no oil shock yet inflation increased by more than half a percentage point: '66, '68, '69 and '78. The first three were Vietnam War years, when the economy was overheated: capacity utilization was well over 86 percent and the jobless rate under 4 percent. The average jobless rate was considerably higher in '78, but that year was preceded by two years of rapid wage inflation, a trend we do not see now.
In short, it takes an oil shock or a severe overheating of the economy to produce a surge in core C.P.I. inflation. Neither appears to be on the horizon. Oil prices are low and likely to remain so at least for this year. And today's capacity utilization rates, in the 82 to 85 percent range, are well below the levels at which inflation might spike upward.
Myth No. 2: Price increases for industrial goods presage higher general price inflation. The price indexes of the Federal Reserve Bank of Philadelphia and National Association of Purchasing Managers increased noticeably in February and were blamed for fueling inflationary expectations. It is true that these indexes are somewhat correlated with the producer price index for intermediate goods -- say, industrial chemicals and wood pulp -- and other measures of commodity prices. It is also true that commodity prices, severely depressed in recent years, can be expected to rebound as the economy expands.
But over the past decade, the purchasing managers' index has, unsurprisingly, been a poor forecaster of changes in C.P.I. inflation. The managers' index is based on a narrow survey that includes only industrial companies, which account for a small share of overall economic activity; in addition, that index covers only purchases of industrial commodities.
Myth No. 3: Wages will soon accelerate because we are so close to full employment. One source of inflation could be an increase in the growth rate of unit labor costs -- that is, the cost of labor required to produce a fixed amount of goods. But unit labor costs have been decelerating, not accelerating, in recent years.
During 1993, unit labor costs increased by only 1 percent, compared with increases of 1.3 percent in 1992 and 2.5 percent in 1991. Over the past half year, they have fallen as wage changes have remained roughly constant in the face of increasing productivity growth. These developments lie at the heart of the good inflation story.
But are we on the verge of accelerating wage inflation, as some observers suggest? No. Even though the economy has created about 200,000 jobs a month over the past six months, wage growth has remained slow. Average hourly earnings increased only 0.1 percent in March despite significant employment growth. Over the past 12 months, average earnings increased only 2.4 percent.
The major commercial forecasters believe that labor market pressures do not push wage inflation higher until the unemployment rate, as measured today, falls to the range of 5.9 to 6.3 percent.
The Council of Economic Advisers reached a similar conclusion in its recent review of the relation between unemployment and inflation.
These views are reinforced by the economy's most recent experience. If labor markets were truly tight, there should be signs of mounting wage growth. But wage growth has been stagnant over the last year. Even when the unemployment rate falls to the 5.9 to 6.3 percent range, it is likely that wages will begin to drift upward only gradually. And strong productivity growth will continue to moderate growth in labor costs.
Myth No. 4: Rising import prices will heat up inflation. During the past year, the dollar has depreciated against the yen and import prices of Japanese goods are up about 7 percent. But Japanese imports represent only about a fifth of total U.S. imports and only about 2 percent of our gross domestic product. The prices of imports from the rest of the world are lower than a year ago, partly because the dollar has appreciated against most other currencies. Over the past year, prices of European, Canadian and other Asian goods are down about 1 percent, and imports from developing countries are about 4 percent cheaper.
Price increases for imports other than oil remain lower than the rate of core inflation, as has been true during the past five years. It is highly unlikely that import prices will be a source of accelerating inflation any time soon.
Myth No. 5: Higher gold prices mean inflation will increase. Gold prices have rebounded from the doldrums and are at their highest levels in about three years. But we have examined the relationship between gold prices and core C.P.I. inflation, and we find that there has been no correlation between the two since 1982. Developments like gold hoarding in China and political turmoil in South Africa buffet gold prices to such a degree that any causal link between gold prices and U.S. inflation seems hard to imagine.
In the absence of an oil price shock, it takes a sustained period of strong pressures on productive capacity to ignite truly inflationary conditions. Unless capacity utilization exceeds 86 or 87 percent, or the jobless rate drops substantially below its current level for a prolonged period, these conditions are not likely to develop in the near future. Instead, the economy seems well positioned to experience a decade-long phase of steady growth and modest inflation, much as it did from the mid-50's to the mid-60's.
Laura D'Andrea Tyson is chairwoman of the Council of Economic Advisers.
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发表于 2012-4-20 15:16:35
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