The inflation psychosis of the late 1970s is on the wane. To the deep regret of many businessmen, no buying panics can be found the length or breadth of the land.
Just a couple of years ago, people went heedlessly into hock to buy expensive goods before their prices rose further. Today, it is cheaper to wait than buy.
Say, for example, that you're looking at a $10,000 car. The terms of the purchase are 25 percent down ($2,500), with the rest financed at 17 percent. Over four years, you'd pay roughly $14,800.
Inflation is expected to average 6 percent through 1984, according to John Ortego, director of inflation planning for Chase Econometrics. Continuing that measure, a $10,000 car might cost $12,600 in 1986.
So buying now would cost you $2,200 more in credit charges than you would pay four years from now.
The interest paid on car loans is tax-deductible for the 31 percent of taxpayers who itemize. In this case, once you've written off your credit costs, the car might cost roughly the same today as it would cost in 1984. But what a change that is! Previously you would have expected the car to be much more expensive in 1984.
This new arithmetic is changing the way consumers think about expensive purchases. You can now buy a car whenever you happen to want or need it, without feeling any price pressure to buy in advance. You have nothing to lose by putting off your purchase for a year. In fact, if you keep your cash in a high-interest bank or money-fund account, you have something to gain by saving now and buying later.
The same sort of thing is happening with real estate. "I wouldn't buy investment real estate at this time," says L. Guy Palmer of Ayco Corp., a financial planning firm. "You'll be a able to get a better deal and a better interest rate at a later date."
Officially, median house prices continue to rise. But those are artificial figures, inflated by the widespread use of seller financing.
A seller who can't get his asking price in the present market has two choices: He can cut the house price, or he can help the buyer meet the price by granting him a low-rate mortgage.
Some sellers, in fact, may be artificially inflating their house prices, then offering them to buyers at eye-catching mortgage rates like 10 percent. But whether you take less in the house price or less in the financing charge, you are still taking less. It's a price cut, any way you slice it.
How long will mortgage rates stay high? The administration's present prediction is for inflation-adjusted real interest rates to stay high through 1985. If that's the case, you can expect house prices to continue soft. There's no strong reason to rush into the housing market, because prices should not run away from you in the next couple of years.
In fact, there is probably more profit today in renting an apartment and keeping your cash in high-interest bank accounts than there is in putting that cash into a real-estate investment.
Inflation is expected to pick up in the second half of this year, compared with the first half. But that doesn't mean that a new inflationary boom is under way. Assuming that the administration stays with its economic plan, that federal deficits remain high and that money growth continues slow, disinflation is a good bet. Business conditions will be poor and unemployment high, but price increases should remain below the double-digit level.
The price of gold is up 19 percent since June, a sign that some investors fear another tussle with inflation. But raw industrial prices--a reasonably good precursor of business and price trends--have been sinking like a stone.
The end of the consumer buying panic shows up in household balance sheets. Over the past three years, households have sharply reduced their level of debt. Only 54 percent have credit cards, according to a Roper poll, down from 60 percent in 1980. Families in general have brought their costs under control.
In fact, consumers are in good condition to extend themselves a little bit and take on debt. But so far, they're not doing it. Relieved of the goad of spiraling prices, Americans seem content to rest a bit from their frenzied shopping of recent years, and wait to see what the future brings.