Prices Take a Big Tumble

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After weeks of mainly bad reports as the recession grew worse, the March inflation figures proved that the country's current economic travails are yielding some unappreciated benefits. The success of the anti-inflation portion of Reaganomics appears to leave only high interest rates blocking a substantial recovery. That will doubtless increase the White House's resolve to stick with its current policy.

It was almost two years ago to the month that the worst peacetime inflation in American history reached its peak. During the first three months of 1980, consumer prices rose at an annual rate of 17.3%. Many serious economists were concerned at the time that the U.S. might be on the brink of hyperinflation, the politically and socially dangerous phenomenon that occurs when money loses its value and consumers rush to buy before their cash is worth less.

Societies from ancient Rome to Weimar Germany have suffered the consequences of such runaway prices. That kind of inflation usually tears apart the very fabric of a nation. When its currency no longer has any meaning, a country often loses its sense of values. Saving and planning for the future seem foolish; speculators prosper. Says Henry Wallich, a governor of the Federal Reserve: "Inflation is like a country where nobody speaks the truth."

Runaway prices have dogged and bedeviled every President since Lyndon Johnson, who helped unleash the price spiral in 1965 by financing the Viet Nam War almost entirely out of federal deficit spending, without raising taxes. Richard Nixon's clumsy efforts to stop inflation by a 90-day wage and price freeze, and later by various "phases" of economic restraint and stimulus, merely made the problem worse. Gerald Ford's jawboning efforts, epitomized by WIN (Whip Inflation Now) buttons, gave the impression that Washington had few ideas on how to cope with price increases. Under Jimmy Carter, inflation reached towering new heights. From an annual rate of slightly less than 5% in 1976 just before Carter took office, consumer prices rose by nearly 7% in 1977, 9% in 1978 and a stunning 13.3% in 1979.

The decline in inflation during the past year is due to a combination of better policy and better luck. Since Reagan took office, his Administration has sent unmistakable signals to Congress and the American public that the fight against inflation was its No. 1 priority. In addition, the Federal Reserve has maintained a reasonably firm, although often unpopular, control over the growth of money. That has kept interest rates high but helped bring down inflation. Finally, Reagan has enjoyed a little luck of the Irish, as world commodity prices, especially oil prices, dropped sharply.