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The rise in productivity is vital because it helps offset rising labor costs, a big push behind inflation. So far, productivity is running ahead of 1958 wage hikes; autoworkers settled last month for more moderate terms than in recent years (4% wage rise for Ford). The cost of the new contracts has already been written into 1959 car prices. Said Frederic G. Donner, chairman of General Motors, in Manhattan last week: "I think it's fair to say that the contract, as we have signed it, would not require any further adjustment in prices."
Could a splurge in car buying put strong pressure on raw material prices? Says Norman B. Ture, staff economist of the Joint Economic Committee: "I don't see it. Say autos go up to 6,000,000. That won't be enough to exert real pressure on steel, aluminum, glass or rubber capacity. So a good strong demand in autos will not spread great demand pressures through the economy." And just as there are ample materials, so is there still an ample labor supply to keep a brake on wages.
The biggest inflationary specter rises out of the Government's huge ($12 billion) deficit. Yet even there the worry is lessening. Just as last year's deficit was bigger than anyone expected because tax returns dropped in the business slump, so the current deficit may be smaller by $1 billion or $2 billion as business improves and tax payments increase. Says a U.S. Treasury spokesman: "An unbalanced budget does not just of itself create inflation. The extent to which you put it in the banks is the extent of its inflation. This $12 billion will be financed partly by the banks, but that part will not be enough to change the direction of the country. The deficit has become an overemphasized symbol of inflation."
The signs that runaway inflation is not a present danger do not mean that inflation is dead forever. But barring another Korea, or a letup in the Federal Reserve Board's vigilance over monetary policies, most economists feel that the price level will be stable for at least a year.