A Very Expensive Year

If present price trends continue up ward, the average American will remember 1968 as a very expensive year. In August, the most recent month for which the consumer price index has been computed, prices rose 4.3% over the same month in 1967. For the year to date, they have risen 3% over 1967.

Nowadays, the poor consumer utters hardly a syllable of complaint when confronted with a $3 man's haircut in Chicago, a $2.25 neighborhood-movie ticket in Boston, a $1-a-dozen carton of eggs in Detroit. Medical costs are up 7.1% since last year. A private hospital room now goes for $60 a day in some areas. A new baby whose arrival expenses now average out at $275 instead of 1958's $175 will also cost parents much more for such items as diaper service.

Forceful Bargaining. Much of the surge in prices is attributable to soaring wages, which companies have decided to let the customers pay for. President Johnson tried, without success, to hold organized labor's annual contract increases to 3.2%. This year, the raises are more on the order of 6.5%.

The result is that disposable income--the amount of money the average worker has left to spend after taxes--has never been higher. Hourly workers are paid $2.85 on the average; annual per capita disposable income has climbed 7% in a year, to $2,918. Along with these overall increases, some 3,260,000 union members automatically get from 2-c- to 11-c- more an hour each time the cost of living index goes up.

While higher labor costs are inevitably passed along to the consumer in the goods that he buys, the cost of services is even worse. House repairs cost 6.6% more than last year. Auto repairs are 5.3% more expensive, and the 350 shoeshine is a new phenomenon.

In an economy where unemployment is running at 3.5% of the labor force (lowest since 1953) and wages are rising, higher costs for services are predictable. With plenty of work available, the unskilled are leaving low-paying jobs. The only recourse for the bosses is to offer more money without receiving higher productivity.

Where It Hurts. Price increases provoke sporadic boycotts, particularly among housewives. Generally, however, the consumer response has been one of resigned indifference. Most families have up to now overcome the price differential by cutting back a bit on a record level of personal saving. There has also been little hesitation about going into debt. Consumer installment credit increased in August by $853 million, the Federal Reserve Board noted last week; this was the largest one-month rise in 27 years.

Before long, if historical patterns hold, consumers may want to begin saving again so as to reduce their debts. At the same time, probably in the first quarter of 1969, the combination of the Administration's three-month-old income tax surcharge, higher state and local taxes and another increase in Social Security payments will really begin to hurt family pocketbooks. The result may well be a cut in consumer spending and a gradual easing of consumer price increases to a manageable level of 3% to 3.5% a year.

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