Price Vigilance

The U.S. has come to expect higher prices as the cost of better times. The remarkable thing about the current advance is that prices have so far stayed relatively level, and that inflation has remained a bogeyman instead of a jingling presence. Nonetheless, the nation's economists are increasingly concerned about the possibility of broad upward price movements. That concern has been reinforced lately by rumblings from steel executives about the need for price rises and by signs that the United Auto Workers are determined to win a substantial settlement from the profit-heavy auto companies.

Not Ominous. For the price watchers, there have already been a few disturbing signs. In its latest survey, the National Association of Purchasing Agents found more prices going up than down. The prices of such basic metals as aluminum, copper and tin have risen. Scrap steel, electric motors and corrugated paper cartons are all more expensive now than a few months ago. Last week the major U.S. tire companies agreed that there should be an increase in the price of replacement tires -- perhaps by 3% -- to cover wage and benefit hikes won by workers.

For all that, the price increases have been scattered and without any ominous pattern. Some industries, such as chemicals, have had to rescind price increases because the market would not bear them. Though increases outnumber decreases, there have also been numerous price declines, for example in fuel, lumber, industrial pumps, electrical circuits, color TV sets. The wholesale price index, though an imperfect indicator, has stayed flat for many months. The more sensitive index developed by the National Bureau of Economic Research has been rising, and the consumer price index has been rising steadily too -- but at a pace that economists consider normal. For the present, no serious inflationary spiral is in sight. Last week President Johnson expressed his opposition in strong terms to any broad steel price increase. Said he: "If you had a price increase, it would strongly conflict with our national interest in price stability. We think that stability is essential to sustain a strong expansion in jobs and output and to sustain improvement in our balance of payments."

Natural Forces. Even if the steel companies do announce price hikes, they will probably not be across-the-board but limited and selective increases on such products as plate steel, demand for which is so great that delivery time has risen to 14 weeks. The auto unions are likely to settle for a package between the 3.2% ceiling requested by the Administration and the 4.9% increase in the industry's productivity. No other really big industry negotiations come up until mid-1965. Last week's announcement that unemployment has dropped below 5% for the first time in 54 months--to 4.9%-should generally improve labor's mood.

None of this is apt to stop economists from worrying about inflation, even though natural market forces are also working to keep prices in line. U.S. factories are still operating at 83% of capacity, which rules out pressures for price increases from over-demand. Industry has either been able to absorb its costs through higher efficiency, or else--as in the case of the battle for the fuel market among oil, coal and gas --is caught in the kind of competition that produces price cuts. Besides, prosperous consumers tend to trade up to the better models that produce more money for manufacturers and thus reduce the need for price increases.

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