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Greenspan says decline in prices also poses a risk for U.S. economy

SHARE Greenspan says decline in prices also poses a risk for U.S. economy

Falling prices may not be such a good thing after all, Federal Reserve Chairman Alan Greenspan said Saturday.

"There are valid reasons for wishing to avoid ongoing declines in the general price level," he said in Chicago.His remarks, to the annual meeting of the American Economic Association and American Finance Association, were his most extensive yet on the topic of deflation. A text of his speech was released in Washington.

He didn't say directly whether he thought deflation was likely. But, as inflation has diminished to levels unseen since the mid-1960s, private economists have begun to speculate about the prospect for a spell of general price declines.

Prices paid to producers such as factories and food processing plants declined at a 1.2 percent annual rate during the first 11 months of 1997. Consumer price inflation, including services, rose at a scant 1.8 percent rate during the same period.

Most analysts expect inflation to hold at that level or even increase slightly this year. But a few warn of deflation, especially if a flood of cheap imports from economically ailing Asian nations forces domestic manufacturers to cut their prices to stay competitive.

Consumer prices have edged lower only twice since World War II - in 1949 and 1955 - and they haven't fallen consistently since the 1930s.

Greenspan said deflation isn't destructive if it takes place at a time of a rapid growth in productivity.