The debate over inflation has heated up again as business economists refine their forecasts for 1997.

With the nation's economy in the sixth year of its current expansion, some see inflation as dead or dying. Others, however, see a clear and present danger.

A similar dialogue took place after the economy picked up momentum in this year's second quarter. Wall Street dug in for a rate hike by the Federal Reserve to counter anticipated inflation. But the Fed did not act, the economy downshifted, and the debate flickered out.

Now, the focus is on next year, and a division of opinion has emerged because, put simply, inflation is not behaving as it should.

"The business expansion is 67 months old, yet the latest inflation reading is the lowest for this cycle," marveled Edward Yardeni, chief economist at Deutsche Morgan Grenfell Inc. "This is quite amazing, since inflation usually moves higher as an expansion matures."

Excluding volatile food and energy prices, the consumer price index had risen only 2.6% in October versus a year earlier, he noted. "I'd like to remind you that the previous cyclical peak in the 'core' CPI was 5.5%, during September 1990, more than twice today's rate."

Mr. Yardeni stated flatly in his latest report: "Inflation is dead."

More specifically, he sees prices that have kept the CPI near 3% this year moderating next year and predicts: "Inflation is headed toward 0% by the end of the decade or sooner."

In fact, some think inflation may be closer to zero than is generally understood. "The actual inflation rate is probably about 2%," said Philip Braverman, chief economist at DKB Securities, the brokerage operation of Dai-Ichi Kangyo Bank. "And it will stay around that level next year, maybe moving a bit lower."

But other economists draw a sharply different view from the same numbers, based on business-cycle history. They worry that both the Fed and the financial markets are making a risky bet that things are different this time.

"Folks, inflation is not dead," asserted Sung Won Sohn, chief economist at Norwest Corp. "To be sure, a major inflationary spiral is not in the cards, but the best news on inflation is behind us.

"From sea to shining sea, businesses are complaining about labor shortages," he noted in a recent strategy letter. "The fact that rising wages have not yet led to generalized inflation is puzzling. But it is only a matter of time."

Equally emphatic is Robert A. Brusca, chief economist at Nikko Securities International Inc. "Three things you can be sure of: death, taxes, and rising inflation near the end of a business cycle," he wrote in a recent assessment for clients.

"The odds are 8:3 that inflation rises instead of falls after the third year of a recovery," he wrote, adding, "Inflation always rises in the last year of a recovery - always."

"The market's gamble," Mr. Brusca said, "is that 'things have changed.' International competition will keep inflation at bay." It is not a good bet, he cautioned. "Domestic business is just too important to be dismissed, especially local labor markets that increasingly are tighter."

"The Fed's gamble," he said, "is that if pressures rise they will build slowly." But a look back at the low-inflation 1960s does not support that view, he contended. During that era, inflation rose by a percentage point in each of the last two years of business expansion.

Low inflation now still carries risks, Mr. Brusca added. Even if longer- term progress is being made against inflation, "history says there is a relatively large upside for inflation in this recovery."

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