Some Worrisome Increases

About the only good to come out'of the nation's most brutal postwar recession has been the decisive slowdown in inflation. The surge in living costs has slackened from a peak annual rate of 13.6% in the three months ended last October to 5% in the three months ended in May. During the past two weeks, though, a freshet of price increases, actual or contemplated, on aluminum, autos, gasoline and sugar, has aroused some worry about whether the progress can be sustained. Then, rumors of a new Soviet purchase of U.S. grain revived memories of the massive--and inflationary--1972 Russian deal and temporarily caused futures prices of some grains to jump. At week's end it was revealed that discussions are indeed under way. President Ford insisted that the Administration is alert to the dangers of too big a sale overseas but also said, "We hope that there will be a sale to the Soviet Union."

Few, if any, experts expect these developments to trigger a renewed burst of inflation. But there is concern that the recent price rises may presage a move by some companies to seize on the first fragile signs of a rebound, to raise their prices. Any such trend, warns Albert Rees, director of the Council on Wage and Price Stability, would "retard the recovery very severely" by discouraging consumer buying.

Thus Rees moved swiftly to head off a series of price boosts announced by the highly concentrated aluminum industry. Alcoa, for example, proposed an average 2.3% Increase on 60% of its shipments--although its mills are operating at only 74% of capacity and inventories of unsold metal are large. Aluminum companies argue that they have to recover higher operating costs (Jamaica, a prime source of the raw material bauxite, has raised the price more than 700% in the past year) and that anyway, low prices do not move metal in the face of still weak demand. Though the council has no authority to order price boosts stopped, and must rely solely on public-opinion pressure, Rees persuaded Alcoa, Reynolds and Kaiser (which led off the increases) to delay until the council can hold a public hearing July 22 to determine if the boosts are justified.

That move did not dissuade automakers from planning price rises on the 1976 models due in dealers' showrooms in the fall. Last week General Motors notified dealers by letter that the increase would not exceed 6%--thus in effect putting a tentative figure on the rises that all automakers have been talking about as necessary to recoup rising costs of materials and labor. A 6% increase would amount to $335 per car; added to average rises of $1,000 per car over the past two model years, it surely would not help lift auto sales out of the doldrums.

The other increases seemed special cases. Most major oil companies lifted gasoline prices 1-c- to 3-c- per gal. just as the summer driving season went into high gear; an additional 2-c- is likely to be added before Labor Day. But that is at least partly a result of deliberate, if arguable, Government policy--specifically the $2 per bbl. tariff imposed by President Ford on foreign crude oil in an attempt to push prices high enough to force motorists to conserve fuel. Wholesale sugar prices rose 2-c- to 3-c- per lb., largely because of damage done to sugar-beet crops by heavy rains in parts of Minnesota and North Dakota, but sugar prices earlier had dropped 78% after a skyrocketing rise.

Foreign Demand. There are some strong counterweights to the price increases. The biggest: prospects for relative stability in food prices. A new Russian grain deal would not change that outlook. Traders believe the Soviets are not likely to buy more than 3 million tons from the U.S. this year, a little more than a seventh of what they bought in 1972. Moreover, there is growing evidence that the U.S. can satisfy strong foreign demand for farm goods and still have ample supplies for itself. Last week the Agriculture Department estimated that this year's corn crop will total a record 6.05 billion bu., up 30% from last year, and the wheat harvest will weigh in at a bin-busting 2.19 billion bu., up 22%.

All together, forecasters still expect inflation to continue abating. The corporate consulting firm of Townsend-Greenspan predicts a 4.9% pace of price Increases in the fourth quarter; experts at the Wharton School of Business foresee 4.1%. But whether that outlook is realized depends heavily on whether the latest increases are mere coincidence, or illustrate a widespread feeling among businessmen that recovery is the right time to raise prices.

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