'97 CHECKED INFLATION; PRICES HAD LOWEST RISE SINCE '86.

Byline: Richard W. Stevenson The New York Times

Inflation, once the bane of the economy but these days only a minor irritant, barely budged last month, and for all of 1997 showed its smallest increase in 11 years, the government reported Tuesday.

With the economic turmoil in Asia expected to drive the prices of many imported goods lower in coming months, the outlook is for inflation to remain tame, economists said.

Since economists believe official statistics overstate inflation, some analysts think the economy could be on the brink of widespread decreases in the prices of commodities and manufactured goods, although prices for services like medical care and entertainment are likely to go on rising.

Economists have even begun debating the possibility of deflation: an across-the-board decline in prices for everything from real estate and stocks to steel, shoes and the cost of a visit to the dentist.

``Deflation in the prices of many commodities is a reasonable prospect in the months ahead, as the Asian effects work their way through the U.S. and world economies and the strong U.S. dollar against Asian currencies causes a switch in purchases by U.S. consumers to cheap foreign goods,'' said Allen Sinai, an economist with Primark Decision Economics.

``With essentially open borders to imports and a consumer mentality that still looks for bargains, it should be a field day on lots of items for Americans.''

Tuesday's inflation statistics highlighted the remarkable price stability the nation has enjoyed even as the economy has remained robust and unemployment has fallen to near quarter-century lows.

The Consumer Price Index, the most commonly cited gauge of inflation, rose 0.1 percent in December, matching analysts' expectations, the Bureau of Labor Statistics said. The index rose 1.7 percent over the year, the lowest rate since 1986, when oil prices fell sharply. The rate for 1996 was 3.3 percent.