Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, April 11, 1994 TAG: 9404110050
SECTION: NATIONAL/INTERNATIONAL PAGE: A-1 EDITION: METRO
SOURCE: Associated Press
DATELINE: NEW YORK LENGTH: Medium
Last week General Mills lowered the price of the oat-based cereal by 12 percent. Despite rampant anxiety in the financial markets about rising inflation, some forecasters insist the opposite may now be true: Consumer prices are actually falling in some parts of the economy.
While rolling back Cheerios prices, General Mills Inc., the nation's No. 2 cereal maker behind Kellogg Co., made similar cuts in the prices of Wheaties and other popular cereals.
"That to me was a very telling statement," said Bruce Steinberg, an economist at Merrill Lynch & Co.
"In a few selected parts of the economy, relating mainly to autos or steel, there are some pricing pressures that have shown up. But in much broader parts of the economy, there's pretty intense disinflationary pressure under way."
Attention to signals of inflation has contributed to a powerful sell-off in the financial markets in the last month. Investors abhor inflation, partly because it chews up the value of investments such as bonds, which pay fixed interest rates.
Not all economists think investor fears are overblown. Because market players tend to invest in financial instruments for the long haul, they must look beyond current inflation trends and try to anticipate consumer prices over the next year and beyond.
"If people are worried over the long term that their dollars are worth less, they start taking action immediately to ensure" they don't lose money, said Scott Lummer, an investment expert at Ibbotson Associates in Chicago, an investment consulting firm.
But to everyday Americans whose paychecks stretch virtually as far as they did one year ago, evidence of inflation is spotty at best.
Oil prices are at five-year lows. Many food items cost less. Growth in health care costs, a major cause of past inflation, has slowed. Car price increases are subdued. Workers are hesitant to ask for salary increases with all the recent layoffs.
A sustained financial market decline also could help keep a lid on inflation, according to William Sullivan, director of money market research at Dean Witter, Discover & Co.
That's because weakened stock and bond markets could dampen consumer confidence and push up interest rates. High interest rates cut into new home sales, which are a fulcrum of consumer demand for all sorts of goods and services. High demand for goods in limited supply is a cause of inflation.
In Russia, inflation has approached 1,000 percent a year for many food staples. Brazil's government just launched its eighth plan in as many years to check inflation running 40 percent a month.
By comparison, inflation fears in the United States seem exaggerated. Financial traders fret because inflation threatens to edge higher than the 2.5 percent annual rate recorded over the 12 months ended Feb 28.
The next round of inflation news that could jolt the markets comes this week when the Labor Department releases March wholesale prices Tuesday and consumer prices Wednesday.
Most economists expect a 0.2 percent monthly rise in producer prices and a 0.3 percent increase in consumer prices, continuing the recent trend of low inflation.
"The issue in a nutshell here is, `Do you believe we're seeing the beginning stages of a pickup in inflation, or do you believe inflation will stay at 3 percent or lower?' I would put myself in that latter category," said Donald Taylor, a portfolio manager of short- and intermediate-term bond funds at Fidelity Investments, the nation's largest mutual-fund company.
by CNB