Prices Take a Big Tumble

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Reductions in the size of automatic cost of living adjustments will surprise many of the 36 million recipients of Social Security benefits. Every July, the Government readjusts monthly payments to.take into account cost of living increases. Last July the payments were boosted by 11.2%, but this year they will be up only 7.4%. Declining inflation now means that the Government will pay out an estimated $1 billion less during the 1983 fiscal year that begins in October than had previously been anticipated.

Ironically, the Reagan Administration's good news on inflation will make it even more difficult to keep the budget deficits down. Reason: with inflation rising, both wages and prices go up, and the Federal Government's tax receipts climb sharply. Conversely, when inflation goes down, tax receipts grow less rapidly and the deficit temporarily widens. The budget shortfall for the 1983 fiscal year is already projected by the Congressional Budget Office to reach perhaps $153 billion, rising to as much as $188 billion in fiscal 1984.

Those deficits are the most serious dangers for the new outlook on inflation. Without some progress in bringing the deficits down, the economy is likely to remain in recession or return to inflation once economic growth picks up. Unless there is that essential budget control, the single most impressive accomplishment to date of the Reagan presidency—keeping inflation on the run—could be lost. The Reagan program against high prices is succeeding, but it will take still more action on the budget deficit to remove the disease of inflation permanently from the American economy.

—By Christopher Byron. Reported by Bernard Baumohl/New York and David Beckwith/Washington