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Not to be released until
after 7:00 P. M. February 27

Talk by Mr. Darryl R. Francis, President, Federal Reserve Bank of
St. Louis to the Mortgage Bankers Association of St. Louis at the Chase
Park Plaza Hotel on February 27, 1969

The chief domestic economic problem of the country is in­
flation. Over-all prices which were rising at just over 1 per cent per
year in the early 196O’s are now rising at about a 4 per cent annual rate.
Inflation creates inefficiencies, increases speculation, and reduces our
ability to compete with foreign producers. In addition, inflation redistri­
butes the real income of the country. It bears heavily on holders of
money, saving accounts, bonds, and other fixed dollar claims. It hurts
those on pensions and relatively fixed incomes. Inflation causes higher
interest rates which bear heaviest on the real estate mortgage market
and other areas where interest cost is a large percentage of total cost.
Many times workers feel that they are better off with inflation
because it seems easier to find jobs and because wages tend to rise
faster; however, when wages are adjusted for the rise in the cost of
living, these apparent benefits usually vanish. In the period of relative
price stability from 1958 to 1964, average weekly earnings of contract
construction workers rose at a 4. 1 per cent annual rate. Adjusted for
the rise in the consumer price index, this amounted to an increase in
•’real” wages at a 2.9 per cent rate.
In the period of inflation since
1964, average weekly earnings have risen at a 5.5 per cent annual rate,
but in real terms the gain has been at a 2.5 per cent rate.

The inflation has been caused by an excessive amount of
spending relative to the country’s ability to produce. The stimulation
to spending has come in great part from a very rapid growth in the money
supply. Since the early 1960’s federal spending and taxing programs
have also been expansionary, but since these actions were reversed in
mid-1968, there has not yet been much, affect on growth of spending.



Current Economic Conditions


Darryl R. Francis, President
Federal Reserve Bank of St. Louis
Mortgage Bankers Association of St. Louis

Chase-Park Plaza Hotel
St. Louis, Missouri

February 27, 1969

















developments with post "trends."
All data are seasonally adjusted.

Prepared by Federal Reserve Bank of St. Louis

Comparison of Construction Costs
and Consumer Prices

Ratio Scale

Ratio Scale

Latest data plotted: Construction Costs-4th quarter estimated

Consumer Price?-4th quarter

Prepared by Federal Reserve Bank ofSt. Louis

Yields on Highest-Grade Corporate Bonds

in the implicitGNP price deflator in the preceding twenty-four months from the market
rate on corporate Aaa bonds. The price deflator for the first and third months of each
quarter was estimated by linear interpolation. Implicit price deflator for first quarter
1969 is estimated.
While this is an important phenomenon, there is no perfect agreed upon way of
calculating and presenting it, and the series may be considered an illustration or

approximation of what has been going on.
Latestdata plotted: February estimated

Prepared by Federal Reserve Bank of St. Louis