Price Stability and Public Policy

The purpose of this research is to examine the question of price stability and public policy. Price stability, generally, may be considered to be an absence of price level changes. In contemporary American society, however, price stability is thought of in the context of inflation (Mishkin, 1984, pp. 1-24). It has been so long since any broad level deflation has occurred in the American economy, that the phenomenon is seldom considered (Nordhaus, 1984, pp. 25-32). Price stability in this research is considered in the context of inflation.

Price stability also implies, in general terms, little or no price movement. Little or no movement is an imprecise criterion. Since the end of the Second World War, however, there have been but two time periods when this criterion can be said to have applied. During the 19521955 (inclusive) time period, annual inflation (consumer prices) did not exceed 0.9 percent, and consumer prices actually declined in 1954 (Council of Economic Advisers [CEA], 1988, p. 291). During that same time period, annual changes in producer prices ranges from 2.2 percent to +1.2 percent (p. 297). The rate of inflation was also quite low from 1958 through 1965, when annual price increases (consumer) did not exceed 1.9 percent (p. 291). Producer prices during that time period ranged from an annual decrease of 0.5 percent to an annual increase of 3.3 percent (p. 297).

Thus, in the contemporary American economy, price stability has co

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