Business: Prices: Some Small Relief

TIME'S economists figure that the peak is past and recession is ahead

Inflation, the nation's inescapable mugger, has been ripping off Americans' buying power at a painful 13% annual rate for the first three months of the year. Now the rampage is waning, but it is far from over. That is the conclusion of the TIME Board of Economists, which met in Manhattan last week to examine the future course of business. Board members cautioned that, although the rapid rise in prices will slow, inflation will continue at a punishing double-digit pace into summer and remain a burden for at least the next two years. Says Joseph Pechman, director of economic studies at Washington's Brookings Institution: "The economy could be in for a very, very nasty period."

The economists' forecasts, which are strikingly similar for a group with such diverse philosophical views, call for a mild recession to begin in the summer. It is even possible that a recession has already begun. More likely, notes Beryl Sprinkel, executive vice president of Chicago's Harris Bank, "the economy is slowing in a pattern that is typical of a prerecession peak."

The moderate decline in output probably will continue for six to nine months, after which the economy will rise again. Board members are unanimous in their view that since the downturn is inevitable, the sooner it occurs, the shallower, less lengthy and more effective in damping inflation it will be. Said David Grove, a consultant to IBM and other major companies: "It would be better to take our medicine quick."

Other key points made by the ten-member board:

> Unemployment will climb from 5.8% now to a peak of 7.3%, or perhaps higher, by the second quarter of 1980.

> Though no new Government spending programs are in sight, the federal budget deficit will be far more than the $28.4 billion the Administration is forecasting for fiscal 1980 because the recession will reduce tax revenues.

> A tax cut for both individuals and corporations is probable next year.

> Interest rates are nearing their peak, and, though they will continue to rise for the next month or two, they will begin to level out or decline by summer.

> Inflation will run at an annual rate of 8% by next December, then slip to 7% by December 1980. A major reason for this slowdown is that the recent rate of price rises is unlikely to continue. In the first quarter alone, fuel jumped at an annual rate of 25%, and home financing, including mortgage rates, taxes and insurance, shot up 26%.

Walter Heller of the University of Minnesota suggests that most of the bulge in energy costs, caused by OPEC's recent boosts in world oil prices, will have worked itself through the economy fairly soon. Even though more increases are expected this year, he says, "I don't think the news ahead of us on oil will be as grisly as the news behind us." Heller also expects some relief on the food front by summer, though the price of beef will continue to be hefty while cattlemen rebuild their still skimpy herds. At the same time, production of pork and poultry is increasing, there are abundant "carryover" supplies of corn and soybeans from last season's harvests, and, says Heller, "the winter wheat crop looks great."