WASHINGTON -- Inflation is declining as the U.S. economy continues to perform well, Federal Reserve Chairman Alan Greenspan said on Friday.

"The U.S. economy has recently been experiencing the ideal combination of rising activity, falling unemployment, and slowing inflation," Greenspan testified in an opening statement to a bipartisan budget commission.

Greenspan's upbeat comment on inflation was a surprise because many analysts are worried that price pressures will intensify as the year unfolds. While Greenspan did not say what he expects to happen in the future, he seemed to be intent on delivering a positive message about the Fed's outlook.

Last week the Labor Department reported that the producer price index was unchanged in June while consumer prices rose 2.5% compared with a year earlier. Both reports boosted the bond market and helped erase expectations that Fed officials will move right away to tighten credit.

Greenspan's comments were made before the Bipartisan Commission on Entitlement and Tax Reform, an independent, 32-member panel created by the Clinton Administration to review long-range fiscal issues.

Greenspan is scheduled to testify Wednesday before the Senate Banking Committee to deliver the Fed's semiannual monetary policy report to Congress.

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