Writing on the wall.. .street
Charles H. Stahl
The US wholesale price index declined 0.5 per cent in December of last year and ,dropped a further 0.3 per cent in January and 0.8 per cent in February. The consumer index will follow, and we expect that by the end of the year the rate of inflation will have dropped from approximately 14 per cent a year to 4 per Cent or less in the last quarter.
Those who are worried about a new inflation spiral triggered by the current easing of the money supply as well as declining interest rates in the US will be in for a surprise; I do not believe that inflation could possibly be rekindled before 1977, and even then only a single digit inflation. At present US industry operates at only 70 per cent of its capacity, which is the lowest rate since compilation began in 1948. We have a build-up not only of unused industrial capacity, but unused labour power as well. Currently at 8.2 per cent, unemployment may still go up in the next few months, but thereafter we believe that a slow re-employment of both unused labour power and unused industrial capacity will help the coming economic expansion and steer sustained growth without excessive inflation. Further, the . next period of potential inflationary growth will start from a much lower inflationary base than the one that was experienced in the last three years.
Therefore, even assuming that after declining to below 4 per cent the inflation rate will begin to grow again, we do not expect this rate to exceed 10 per cent on a yearly scale at any time during the decade. The 200 point rise of the Dow Jones Industrial Average from 570 to 770 is well-based because the American people, having licked inflation, will now be able to devote their full efforts to combat the recession. The worries of some of our domestic as well as European friends about a potential depression in the United States are ill-founded; even though the current recession is the deepest since the 1930s. that is all it is. The light at the end of the recessionary tunnel can be seen, with the US GNP declining this year by 3-4 per cent and rising by more than 5 per cent in 1976. The decline of the US dollar in the foreign exchange markets can be considered a thing of the past, and those 'buying stocks will not only benefit from higher stock market quotations, but from a high dollar rate as well.
Charles Stahl is President of Economic News Agency and publisher of Green's Commodity Market Comments.
Previous page
