Greenspan Attempts to Calm Inflationary Fears

Consumer Prices Rise in May; Core Prices Tame

Federal Reserve Chairman Alan Greenspan today downplayed inflation concerns just hours after a government report showed consumer prices rose in May at the fastest monthly rate in more than three years.

The consumer price index, the most widely followed inflation measure, grew by a seasonally adjusted 0.6 percent in May, primarily because of climbing rising energy and food prices, the Labor Department reported.

Energy prices were up 4.6 percent last month, for a 15 percent increase during the 12 months that ended in May. Food prices rose 0.9 percent for the month and 4.1 percent during the 12-month period.

But after stripping out volatile food and energy prices, the underlying "core" CPI rose just 0.2 percent in May, and a low 1.7 percent in the 12 months just ended.

Greenspan, speaking during a Senate Banking Committee hearing on his nomination for a fifth term as chairman, said the central bank continues to believe it can raise interest rates gradually in coming months because inflation is likely to remain tame.

But he also repeated that Fed officials are prepared to move more aggressively if their forecasts turn out to be wrong.

"Our general view is that inflationary pressures are not likely to be a serious concern in the period ahead," Greenspan said in response to a question from the committee chairman, Sen. Richard C. Shelby (R-Ala.).

Fed officials are watching inflation developments closely but are not alarmed by the recent upward trend, the central bank chairman indicated. Greenspan recalled that Fed policymakers said in a statement after their last meeting in early May that they believed that they likely would raise their target for a key short-term interest rate at a "measured" pace.

Analysts have interpreted "measured" to mean the Fed expects to raise the target in quarter- or half-point steps over many months or several years. Greenspan said today that the pace of increases still "is very likely to be measured over the quarters ahead."

"But, clearly this is our general view of the outlook, and forecasts are subject to error," he added. "And if our judgment as to how the economy is going to evolve and how inflation is going to evolve turns out to be mistaken, we will change, because our fundamental goal is . . . to maintain price stability over the longer run as a means of creating maximum sustainable growth."