DATE: Thursday, July 17, 1997               TAG: 9707170468

SECTION: BUSINESS                PAGE: D2   EDITION: FINAL 

SOURCE: BY JANET L. FIX, KNIGHT-RIDDER NEWSPAPERS 

DATELINE: WASHINGTON                        LENGTH:   71 lines

INFLATION LOWER NOW THAN IT'S BEEN DURING PAST THREE DECADES

Inflation, the curse of consumers for decades, is lower now than it has been in three decades, and that bit of good news helped the Dow Jones Industrial Average close above 8,000 for the first time ever.

Consumer prices grew at an annual rate of just 1.4 percent in the first half of the year, the government reported. If they continue to grow at that pace for all of 1997 it would be the lowest annual inflation rate since 1965.

``Inflation isn't dead, but it's as close to being dead as we've been in many many years,'' said Sandra Shaber, economist for the Philadelphia-based WEFA Group.

Inflation is ``shockingly low,'' said William T. Wilson, a Comerica Bank economist. ``Everybody assumed we'd see inflation over 3 percent.''

The good inflation report reassured investors that the Federal Reserve Board will not be tempted to slow the economy with fresh increases in interest rates. Convinced that company profits can continue to grow and with few alternative investments, investors have been pushing stock prices higher and higher.

The continuing good economic news is encouraging to Americans who remember all to well the double-digit inflation of the '70s and '80s that tormented consumers and made ``Whip Inflation Now'' the nation's battle cry.

But inflation peaked in 1982 at 14.76 percent and has been falling pretty much ever since. In fact, inflation has been in the low-single digits since 1990, but people just can't get used to it being so low.

``Even after six years of low inflation, people still fear that inflation will rear its ugly head again,'' said David Littmann, chief economist for Comerica Bank. ``But we expect inflation to continue to be low for the foreseeable future.''

That's good news to investors, especially baby boomers, who've socked away retirement money in stocks. They have reaped huge rewards from low inflation that has set share prices soaring and retained the value of their investments.

But low inflation isn't popular with some senior citizens and wage earners who hope for fat annual increases in Social Security, pension payouts and wage hikes that are tied to the inflation rate.

``These people are facing their lowest cost-of-living adjustments in six years and they're not happy about it,'' said Comerica's Littman. ``You already have senior citizens screaming bloody murder about low Social Security increases. Wait till they get lower.''

Others who have put their savings in certificates of deposits or bonds also are unhappy. Such investments used to earn double-digit returns rather than a few percentage points they now yield.

``One retired school teacher who has 75 percent of her money in CDs is grousing because she's not making money and she can't stop wishing for the good old days,'' Bert Whitehead, a Detroit financial planner. ``She hasn't made the connection that low inflation is helping her save money every time she fills up her gas tank or buys food at the grocery store.''

Nor do such complaints recognize that high inflation eats at the value of income and savings.

Economists credit Fed Chairman Alan Greenspan with keeping the lid on inflation. But consumers deserve credit, too.

One big hedge against inflation has been shoppers' reluctance to pay higher prices.

``In the '70s, the mentality was if you don't buy now, the price will only go up. Now, it's why buy now? If you wait, the price will fall or the item you want will be on sale,'' said WEFA's Shaber.

That sort of attitude has kept retail prices on many items, especially on apparel, constant or falling in recent years. The price of women's apparel, for example Shaber said, has fallen three out of the last four years.

Consumers have also proven picky when buying big ticket items like cars.

The average price of a new car this year is up less than 1 percent, the lowest is several years. And auto makers are having to offer more enticements to consumers. KEYWORDS: INFLATION

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