The Raging Global Price Plague

A few nations stand out in the hard inflation fight

As if to prove the adage that misery loves company, President Carter began his economic message two weeks ago by noting that virulent inflation had become "a worldwide problem." Indeed, inflation now appears to be an entrenched global phenomenon. No nation is escaping its ravages; no consumer goes unscathed. The Paris-based Organization for Economic Cooperation and Development predicts an average inflation rate of 12 1/2% for industrialized nations in 1980, marking the first time that its annual forecast has ranged into double digits.

Like the bubonic plague that swept through medieval Europe, global inflation is all the more frightening because neither its causes nor its cures are fully understood. Herewith, an economic Baedeker, arranged according to varying degrees of success in fighting inflation:

Doing Well. West Germany boasts one of the world's lowest inflation rates. But the country's consumer prices will probably rise by 5:6% this year--twice the January 1979 rate--largely because of its near total dependence on high-priced foreign oil. To combat this problem, Bonn is sticking to the same basic course pursued since 1973: tightly controlled expansion of the money supply, high interest rates, moderate but steady economic growth and a strong deutsche mark. Instead of the stop-go style of the U.S., an official in Bonn's Economics Ministry explains, his government prefers to keep "a gentle, careful foot on the accelerator."

Japan is another major industrial power that has held its own against inflation, which was only 3.6% in 1979. This was accomplished, despite a heavy dependence on imported oil and raw materials, by streamlining production processes and maintaining the yen's high exchange value. Since the autumn of 1979, however, a considerable decline of the yen and external price factors have driven consumer prices upward. Last week the government of Prime Minister Masayoshi Ohira announced a new anti-inflation package, including sharp cuts in public-works spending and an increase in interest rates.

One of the most intriguing examples of successful inflation fighting is Singapore. From 1975 through 1979, consumer prices in that booming island republic rose by only 3% a year. How was this possible? Through balanced budgets, cautions monetary policy and an enforced saving program that soaks about 30% of the nation's wage bill for capital spending. Explains Economist Pang Eng Fong: "There's a very Confucianist philosophy of government here that saving is good and spending is bad."

Getting By. Canada stands out as the Western Hemisphere's most successful inflation fighter. February's consumer prices were 9.4% higher than a year earlier, compared with 13.9% in the U.S. for 1979. The main reason for Ottawa's relative success is that it has so far shielded consumers from the effects of the OPEC price hikes. Canada produces 75% of its oil requirements and sells oil domestically at less than half the world price.

The French have long shown a relaxed attitude toward inflation, chiefly because wages have more than kept up with prices. But with inflation climbing up to 12.9% during the year ending in January, Premier Raymond Barre has promised to intensify the country's inflation fight by means of low budget deficits and controlled monetary growth. But there are trouble signs: pressure is building to hold wages down, which would surely enrage the highly politicized unions and endanger the 1981 re-election prospects of President Valery Giscard d'Estaing.

Hurting. Britain is clearly losing the price battle. Reversing policies of the previous Labor government, Prime Minister Margaret Thatcher's Conservatives have drastically sliced public spending and raised borrowing rates at the Bank of England to a record 17%. Nonetheless, inflation has doubled to nearly 20% since Thatcher took office, chiefly because of soaring oil prices and high wage settlements.

But Britain is far better off than Italy, whose current 21.7% rate tops European Community countries. Among the main causes of Italy's price explosion: a formidable budget deficit, an overvalued lira and an automatic wage-indexing system that only exacerbates the problem.

Reeling. In some of the less developed nations, inflation has reached the point of absurdity. Rampant inflation in such Third World countries as Zaire (more than 90%) and Argentina (more than 120%) has been fueled by years of economic mismanagement, corruption, and deficit spending financed by the uncontrolled growth of the money supply. The newest member of the triple-digit club is Israel, whose current 121.4% inflation rate has been caused largely by heavy defense spending, high oil prices, public works and costly social welfare programs.

While conclusions are difficult, it is clear that the more successful inflation fighters are those, like Germany and Japan, that were able to recognize and curb inflationary tendencies before they roared put of control. By consistently maintaining a strong currency and exercising a cautious restraint in monetary and fiscal policy, both of these energy-importing countries have thus far been able to withstand the global price spiral.

This file is automatically generated by a robot program, so viewer discretion is required.