Progress toward price stability : a 1998 inflation report

Price stability was not literally achieved in 1998, as many measures of the price level continued to rise, and inflation expectations were well above zero. Yet in 1998, consumer prices rose at the lowest rate in over a decade, and any upward pressures on inflation were surprisingly subdued.> Although many economists still worry about potential upward pressures on the inflation rate, last year's low inflation and foreign economic crises have produced a new set of concerns. In particular, some economic observers and financial market participants are concerned that disinflation, the process of lowering the inflation rate, may go so far as to produce deflation, a persistent decline in the general price level. These observers point to large decreases in petroleum prices and other primary commodity prices, rapidly falling computer prices, and moderate declines in U.S. nonoil import prices as possible signs of deflation.> Garner argues that last year's favorable inflation performance, while suggestive of further modest progress toward price stability, does not foreshadow an emerging deflationary period. He reviews price developments over the last year, showing that many broad measures of inflation declined in 1998, but most remained positive. He also examines the slight decline in long-term inflation expectations last year and its implications for future monetary policy.