A Persistent Fever

For all the medicine that the Government has prescribed, the nation's economy has not yet begun to shake its inflationary fever. Businessmen have a hearty appetite for expansion--and it is not likely to be spoiled by President Nixon's plans to drop the investment tax credit. The stock market remains steady despite such worries as the war, the balance of payments and the prospects of a pinch on profits. While complaining about high prices, the consumer keeps on buying.

Last week the Government announced that prices rose at a faster rate during March than in any other month since the peak of the Korean War inflation. The increase was 0.8%, which, if continued at the same rate for a year, would bring an overall price advance of almost 10%.

Portent of Decline. The consumer price index, of course, is a better indicator of the past than of the future direction of the economy. Says Economist Arnold Chase, assistant commissioner of the Bureau of Labor Statistics: "Prices tend to coast up even after the economy has begun to cool off. There has been no fuel added to the fire for several months." Several special circumstances, moreover, contributed to the March price increases. One was the fact that high interest rates were suddenly included in the figure for home ownership costs. Prices for used cars, which swung downward temporarily last year, rebounded sharply to their former levels. Food rose by 0.4% and clothing by 0.6%. Higher prices did not deter shoppers from buying spring fashions; March sales in the apparel industry rose 14% above their level of a year earlier.

Consumer prices may rise more slowly in the months ahead. One indication is that wholesale prices were moving up only modestly during April, in contrast with strong advances during several earlier months. Softwood lumber prices, for example, jumped by 61% in March, but have begun falling again. For the moment, however, high prices are hurting not only the consumer but the exporter. The U.S. balance of payments, which was $990 million in the black at the end of last year, is expected to show a large deficit for the first quarter of the year. The important trade balance may be in the red, partly because of the winter dock strike, but also because of the high cost of U.S. goods to foreign buyers.

White House economists nevertheless maintain that the economy is performing close to their expectations. They contend that it normally takes about six months before monetary and fiscal measures begin to affect prices. "We must recognize the narrow social tolerances within which economic policy must operate," says Chairman Paul McCracken of the Council of Economic Advisers. "The cold-turkey treatment of sharp deflation is not available in the modern world." If the spring fever proves resistant, the Government's cures should, along with the anticipated seasonal slack, begin to show some results by summer.

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