Thursday, June 17, 1999
Inflation chatter inflated or real?
Experts predict Fed rate hike
BY BRIAN TUMULTY
Gannett News Service
WASHINGTON — The on-and-off debate about the threat inflation actually poses to the economy is building again as Federal Reserve Chairman Alan Greenspan and the 11 other officials who make decisions about interest rates prepare to meet at the end of the month.
“They've got an itchy trigger finger, and they can't wait to raise interest rates,” observed Sen. Tom Harkin, D-Iowa, a perennial critic of the policymakers, who he thinks are too quick to defend the nation against a perceived threat of inflation.
Many Americans may have seen news reports that higher interest rates could be on the horizon. Wednesday's government report that consumer prices were unchanged in May eased that fear:
• Airline fares dropped 2.5 percent after five monthly increases.
• Gasoline prices fell 2.7 percent after a one-month jump of 15 percent.
• Food costs rose a modest 0.4 percent.
• Shelter costs rose only 0.2 percent.
So far this year, the annual rate of inflation felt by consumers is 2.6 percent, compared with a 1.6 percent rise for all of 1998, the smallest in a dozen years.
Some experts still expect pre-emptive action to raise rates and slow economic growth. They point to the inflationary pressure that is building in the health care sector, and abundant credit fueling new construction.
“Inflation gets all the media attention, but excess credit growth in the past has proven to be as much of a problem,” said David Orr, chief econ omist for First Union Capital Markets in Charlotte, N.C. Private lending jumped 10.5 percent in April — the first double-digit increase in the 1990s.
And Fed Governor Roger Ferguson mentioned last week “the sharp rebound in world oil prices and a surge in health insurance costs.”
Large employers signing contract renewals with health maintenance organizations for 2000 are shouldering 9 percent to 15 percent increases in rates, said Blaine Bos, a health care consultant for William Mercer Inc.
However, the government reports that overall medical care costs have risen a more modest 3.4 percent during the last 12 months.
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