No Inflation

Economists, industrialists and ordinary family budget keepers for months have been nervously eying the price index, searching for the first real indicators of inflation after seven years of relative stability. Last week they almost found them. Three big shoe companies announced price increases of 4% to 5%; loading charges at many ports were hiked 5% to 12%; prices of glass containers went up more than 3%, and floor tile 5%. Tags on paper, sugar and chemicals also grew. Steel fabricators, pondering the new labor contracts with higher wages and fringes, hinted heavily of forthcoming boosts.

Many broader economic factors seemed to support the inflationary fears. U.S. plants were running at their busiest rate in ten years--90% to 91% of capacity--meaning that manufacturers were not only bringing in their least-efficient, highest-cost equipment but were encountering the kind of optimum demand that tempts them to hike prices. With unemployment down to an eight-year low of 4.5%, labor shortages were showing up in more and more key areas, and workers felt that they could demand plumper pay. Strikes broke out in several industries from coal mining to cookie making.

Yet most economists believed that the inflationary spiral had not begun--at least not yet. Food prices, which reached a 34-month high in June and were a major factor in the 2.2% rise in wholesale prices during the year's first half, dropped in August for the second straight month, thanks to a bountiful harvest and beneficent weather. Steel demand tapered as the strike threat faded, and import competition remained stiff, serving to dampen any inclination toward rises in basic steel prices. Industrial investment this year will scale an alltime peak of $50 billion; that will expand capacity and reduce pressure on marginal plant. One powerful psychological brake to inflation: General Motors' decision to hold the line in auto prices (see following story).

Weighing all factors, both U.S. Labor Secretary Willard Wirtz and Otto Eckstein, a member of the President's Council of Economic Advisers, predict continued price stability.

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