A Turn for the Worse

Shocking new evidence arose last week that inflation has again become the nation's No. 1 economic worry. The consumer price index soared 1.2% in July, equal to a 15.4% compound annual rate. That was as bad as the worst month of inflationary 1974 and marked the second month in a row that the annual rate of price boosts has been in double figures. Food prices jumped a startling 1.7% in July, mainly because of hefty increases in meats, poultry and vegetables. Gasoline prices climbed even faster: 4.3%, or an average of 2.4-c- per gallon. The cost of fuel oil, used cars and medical services also continued moving up at a double-digit annual pace.

Administration economists continue to insist that the inflation rate will subside soon--perhaps to 6% or 7%, which, to be sure, would still be distressingly high. Last week in Vail, Colo., President Ford's chief economic adviser, Alan Greenspan, said of the CPI for August: "We do expect it to be below the double digit rate." The Department of Agriculture called a special press briefing at which officials reassuringly predicted that the retail cost of food will rise no more for the rest of the year than it did in July alone. Their reasoning: most meat and poultry prices appear to have peaked, and some have already declined at the wholesale level. In addition, the July spurt resulted partly from bad weather that hurt grain and vegetable crops. During all of 1975, the department forecasts, food prices will rise 9%; that is more than its previous prediction of 6% to 8%, but would still indicate that most of the rise is over.

Countering Criticism. The department's statements seemed inspired partly by eagerness to counter sharpening criticism of sales of U.S. grain to the Soviets, and they did not wholly succeed. Department officials say the main impact of the Soviet purchases on U.S. prices will come in 1976, but Agriculture Secretary Earl Butz and department economists concede that additional Russian buying will ultimately raise consumer food prices by more than 1.5 percentage points.

Many economists outside the Government, meanwhile, fear that the June-July surge in living costs means the U.S. is in for what Data Resources Inc. President Otto Eckstein calls "a new wave of inflation"; he expects it to last for six to twelve months. The experts' main dispute seems to be over the reasons for that wave. Though all agree that crop failures played a role, Brookings Institution Economist Arthur Okun cites such "self-inflicted wounds" as the Soviet grain sales and the coming abrupt decontrol of oil prices at the end of this month. Monetarists argue that the Federal Reserve's moderately easy money policy earlier this year is partly to blame.

Whatever the reasons, Wall Street this week seemed convinced that inflation would continue to bedevil the economy. After rising sharply during the first half of the year, largely on hopes that inflation had abated and the recovery was well under way, the stock market has tumbled recently. Last week the Dow Jones industrial average closed at 805, down 21 points for the week. Bond prices also dipped on news of the July rise in living costs, and interest rates continued to creep upward--a sign that lenders, too, expect inflation to remain rampant and are determined to extract a higher price for their money.

For consumers, perhaps the most visible sign of inflation during the next few months will be gasoline prices. Although the Administration is sticking by its earlier prediction that decontrol of oil prices would trigger only about a 3-c--per-gal. rise, some other estimates keep coming in higher. Representative John D. Dingell, chairman of the Interstate and Foreign Commerce Committee's Energy and Power Subcommittee, calculates that gasoline prices could skyrocket to 90-c- per gal. Most experts doubt that the petroleum retailers will boost prices anywhere near that much, since the summer driving season will soon be over and demand for gasoline is softening. Petroleum Industry Research Foundation Chief John Lichtblau forecasts a 3 1/2-c--to 4-c--per-gal. rise this fall, and perhaps another 1-c--1 1/2-c- increase next spring.

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