Monday, Apr. 02, 1973
The Shocking Rise in Prices
LKE Banquo's ghost, inflation continues to haunt the nation--and the Nixon Administration. Frightened by that specter, housewives are organizing a nationwide boycott of meat counters, union chieftains are threatening to press for fat wage raises, and Congressmen are calling for a return to the stringent controls that existed until January. From the very moment that President Nixon loosened those controls, Democratic politicians and economists warned that Phase Ill's anti-inflation forces were simply too weak. Last week, when results of the first full month of Phase III were reported in Washington, their predictions turned out to be disturbingly accurate. In short, the Government confirmed what has become the bane of every householder and a prime topic of conversation across the U.S.--sky-high prices.
Retail prices in February spun up by .8%--a 22-year record that amounts to a grim 9.6% inflation rate on an annual basis. Herbert Stein, the usually Panglossian chairman of the President's Council of Economic Advisers, conceded: "The news on prices has been bad."
Since food prices accounted for about two-thirds of the jump in consumer costs, many of the President's critics favored putting a freeze on farm-commodity prices--and even some of his advisers declined to rule out that idea. Former CEA Chairman Walter Heller, a member of TIME'S Board of Economists and until now a firm opponent of farm controls, for the first time reluctantly concludes that such a freeze may become necessary. "It's economically distasteful, but may be needed to block a new price-wage spiral," he says. Many economists still fear, however, that a freeze or stern controls on the prices of agricultural products would lead to food shortages and even rationing. Farmers and ranchers will not produce enough unless the price is right.
No Zigs. In an effort to hold down meat prices, the Cost of Living Council ordered packers to pass along any variations in their cattle costs on a dollar-for-dollar basis, without tacking on their customary profit markup. For the most part, Nixon and his advisers seemed determined to ride out the squall without taking one of their sudden, celebrated zigs in policy. In fact, the only thing they seemingly wanted to change was the nation's eating habits. After the President had endorsed fish as a "patriotic" dish and Federal Reserve Chairman Arthur Burns picked cheese, last week COLC Deputy Director James W. McLane jokingly came up with the ultimate meat substitute: abstinence. "Eat a little less," he advised.
Stein insisted that inflation by year's end would be running near the President's 2.5% target--even though February's price increases alone had, in effect, "used up" about a third of that. COLC officials predicted that the Administration's long-range effort to increase farm supplies might well hold monthly price rises to "near zero" by year's end.
Well before then, the President will face a major political dilemma. An unusually large number of unions and employers will be negotiating new contracts, including pacts covering the rubber, electrical, trucking and auto industries. Union chiefs will use such reverses as an excuse for big settlements. Referring to the February cost of living index, Paul Jennings, president of the International Union of Electrical Workers, said: "I look at the daily newspapers and I feel less and less constrained." The danger facing Nixon is that food prices may plant an inflationary time bomb in union contracts, which will last for two or three years.
Balloon. The reason for relentless food price increases, as Agriculture Secretary Earl Butz never tires of telling, is supply and demand. What he fails to add is that the short supplies are partly of the Administration's own making, thanks to an election-year agricultural policy deliberately rigged to pump up farm income by keeping production scarce and prices high. The policy succeeded admirably: last year farmers' net income rose by no less than 19%, and farmers voted overwhelmingly for Nixon. As Butz admits, he is "a political Secretary of Agriculture."
Consumers are about to try and show that they, too, have clout in the marketplace--by staying away from it. All next week a group called FIT (Fight Inflation Together), which was founded a month ago by three Los Angeles women and now claims affiliates in 46 states, will sponsor a nationwide boycott of meat. Their slogan: "Deplete Meat Until Prices We Beat." Says June Donavan, an FIT founder: "We have exposed the nerves of a lot of people. The group is expanding like a balloon." In Atlanta, New York, Seattle and other cities, dozens of housewives' groups are picketing supermarkets, distributing meatless recipes and organizing local meat boycotts.
No Holds. Less politically explosive than food prices but still worrisome was the price climb of other consumer goods in February--up by .5%, the largest such increase since last May. The list was headed by heating oil, gasoline and other fuels, which like food are in short supply and thus economically dear. Landlords who took advantage of Phase Ill's total lack of rent rules sent the cost of services up by .4% during the month. The Senate sought to outlaw any rent gouging by tacking on an amendment to the bill extending until mid-1974 the President's authority to enforce wage-price controls. The amendment limits many urban rent increases to 2 1/2% annually. That provision, which Nixon opposes, might be removed by the House--but last week's inflationary burst may inspire Congressmen to add some of their own rules.
Such challenges to Nixon's almost exclusive control over economic policy can only multiply as more and more Americans are reminded by price tags of the bad old pre-freeze days. In their haste to simplify wage and price controls, with which the Administration has never been philosophically comfortable, the President and his advisers allowed the impression to become too widespread that all limits were off. If, as they predict, the result of that miscalculation is only a temporary bulge in inflation, the White House could help matters by brandishing the traditional presidential jawbone with a good deal more gumption than it has so far shown--perhaps pressuring farm groups, feed-lot operators and supermarket executives to mount a "voluntary" campaign to hold down food costs. But if inflation stays high for much longer, more drastic controls will be necessary.
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