SUMMIT OFFICIAL DISCOUNTS INFLATION FEAR

KATHLEEN LYNN, Staff Writer
The Record (Bergen County, NJ)
11-04-1999
SUMMIT OFFICIAL DISCOUNTS INFLATION FEAR -- SEES STRONG FORCES IN U.S. ECONOMY
HOLDING DOWN THE THREAT
By KATHLEEN LYNN, Staff Writer
Date: 11-04-1999, Thursday
Section: BUSINESS
Edition: All Editions -- Four Star B, Three Star B, Two Star P, One Star B

Inflation is not the threat the Federal Reserve thinks it is,
Summit Bank's chief investment officer told bank customers Wednesday at
a seminar in Teaneck.

"We don't have to worry about inflation in today's environment,"
said Hilton M. Jervey of Summit, the state's largest bank.

The Fed has been raising interest rates this year to slow the
economy and head off inflation.

Its theory is that low employment -- 4.6 percent in New Jersey and
4.2 percent nationwide -- will lead to higher wages as employers compete
for scarce workers. Higher wages, in turn, would be expected to raise
the prices companies must charge for their goods.

But Jervey said there are strong forces holding inflation down.

"Most American workers recognize that they can't be too aggressive
about the wage gains they're asking for because their jobs might be
moved somewhere else," he said.

For example, he said, a Fairfield company that manufactures sensors
recently moved a division to China, cutting labor costs from $38 an hour
to $2.40 an hour. And it's not just factory work: American companies are
sending software design work to Asia and Eastern Europe.

Technology, which has increased workers' productivity, is also
keeping prices down, Jervey said.

And even if wages rise, he said, corporations can't pass those
costs along because of global competition and because customers are
shopping for the best prices on the Internet.

"They can't just raise prices, because they might lose customers,"
said Jervey.

Jervey predicted that the economy would grow 3.2 percent in 2000
and the Consumer Price Index would rise 2.2 percent. Both figures are
down slightly from this year.

He also offered a theory on a Wall Street paradox: Why investors are
bidding up the stock prices of technology companies that aren't making
money.

In an environment where few companies can increase profits by
raising prices, companies with growing sales -- including technology
companies -- look promising to investors.

"People are making bets that in the end, some of these companies
are going to be successful in generating profits for their
shareholders," Jervey said.

Illustrations/Photos: COLOR PHOTO - HILTON M. JERVEY Summit's chief investment
officer

Keywords: BANK. USA. ECONOMIC

Copyright 1999 Bergen Record Corp. All rights reserved.