Progress in Prices

PHASE II

President Nixon's advisers had warned that prices might well show a "bulge" in December, the first full month after the freeze was over. They were right. For wholesale prices, the increase turned out to be .7%--a sharp rise but still less than the one that "I had been prepared to defend," said Chief Presidential Economist Herbert Stein. When the consumer price index for December was released last week, Stein still felt comfortable. The nation's basic cost-of-living measure rose .4%. Though high for a month, it showed that inflationary pressure pent up during the freeze was less than expected. Moreover the rise in consumer prices for all of 1971 was 3.4%--lower than in any year since 1967, when the increase was 2.9%.

Meanwhile, in enforcing Phase II rules, the Government wisely exempted from controls retail merchants who have less than $100,000 in annual sales and landlords who own fewer than four rental units. The stores freed from controls ring up only about 15% of total retail sales. By not dissipating its efforts policing small entrepreneurs, the Government can more effectively concentrate on the large companies and unions that basically determine what is charged for goods and labor. After stores with less than $200,000 in annual sales were freed in mid-January from posting base-price information, it finally became feasible for the Internal Revenue Service to start checking compliance among medium-and large-size firms. Results were not encouraging. In the first week of policing, IRS agents found that 15% had failed to hang signs telling customers where base-price lists could be found.

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