INFLATION is reviving. After the long decline that has run since the beginning of this decade, it's now rising again. That points a sharp question straight at the Federal Reserve Board and its new chairman, Alan Greenspan, who was sworn into office Tuesday. Is it time to tighten monetary policy and send interest rates higher -- with a presidential election campaign now getting under way? The case for tightening is getting stronger as time passes.
Consumer prices have been rising at an annual rate of 5.5 percent since the beginning of this year. At any time before the 1970s that was generally regarded as dangerously high -- and that's the right way to regard it. At this rate the dollar would drop to half its present value in 13 years, not a very long time. But the experience of the 1970s showed that inflation at this level is unstable. It begins to accelerate as people take steps -- such as pushing up prices and wages -- to anticipate it and protect themselves. That hasn't begun to happen yet. But if the process gets started, it's difficult to stop -- and painful, as the experience of the early 1980s proved.
There's a strong temptation in Washington to describe this year's inflation as a blip and to hope that it will shortly fall again. That seems unlikely. Salomon Brothers, the investment banking firm, recently forecast that inflation would be up more than 6 percent next year and that by next summer wages would be rising nearly as fast.
So far, most of this inflation is coming into the American economy from abroad. The fall of the dollar's exchange rate makes imports cost more. The prices not only of oil but of most commodities -- foodstuffs and industrial raw materials -- have been rising. If the economy here strengthens in the second half of the year, as many economists expect, wages are likely to respond. Unemployment has been dropping steadily and quite rapidly since early spring and is now 6 percent of the labor force, a full percentage point lower than a year ago. It's now in the range where, in the past, wage inflation has begun to pick up.
The Federal Reserve is going to be under fierce pressure from the administration and Republicans in general to do no serious tightening until after the elections. The conventional wisdom says that rising interest rates and rising unemployment before an election are fatal to the party in power. But there's more to it than that. Over the past decade voters have made it extremely clear that they don't like inflation or politicians who tolerate it. It's not only Mr. Greenspan and the Federal Reserve but the candidates as well who now are going to have to think very carefully about this year's surge of inflation.