Is Inflation Whipped?

In White House executive offices and at the Treasury, Administration economists last week were quietly celebrating a victory that seemed too good to be true: by all accepted standards, the longstanding threat of inflation appeared to be whipped. Success in a series of key battles, the economists agreed, is winning the war against price upcreep. Ahead for the U.S.. said these prophets with only a pinch of caution, is a new era of steady growth and price stability.

Their confidence was based on the belief that, for the first time in a generation, U.S. fiscal (budget) and monetary (credit) policy are pulling in tandem rather than in opposite directions. Money supply and growth demands of the economy seem to be approaching balance. On one side of the bright new equation is the hefty $4.2 billion surplus forecast for fiscal 1961 by the Treasury, biggest projected surplus since the Truman Administration's $8.4 billion in 1948. And on the other side is the slowly achieved success of the Federal Reserve System in trimming the credit supply to the most easily managed proportions since the '20s: about 30% ($140.2 billion) of the U.S. gross national product.

"If we had not had the 'tight money' some of the Democrats were hollering about." said a Treasury economist, "today we would have prices 5% higher than they are; we could be in an inflationary crisis, and we would be in the middle of a foreign run on gold."

Monetary and fiscal policy have found some powerful new allies in holding down inflation. One is the psychology of the consuming public; buyers plainly intend to buy at their price or not at all. Another new force is sharp foreign competition. For the first time since the 1920s, U.S. labor and management are facing efficient, hustling overseas competition. Price cutting abroad and buyer resistance at home, say the economists, are forcing labor and management to recognize some hard facts about the danger in ever-rising wages and prices.

Most heartening proof of stability, as the economists see it: the plateau achieved by the wholesale commodity price index--down two-tenths of a point in the past year. Another sign, but less significant because it covers more luxuries and services: the Labor Department's consumer price index shows that living costs dipped slightly in January (one-tenth of 1%) for the second consecutive month--the first time since 1956 that decreases have come back to back.

Does the braking of inflation call for any change in policies? Not as the Treasury sees it. Said a top Treasury man: "If we sit back and enjoy it, we're whipped again."

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