Masonry Magazine March 1973 Page. 22
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A RESURGENCE OF INFLATIONARY PRESSURES
THIS YEAR IS WORRYING economists in government and industry. The outlook has turned gloomy with the sharp rise in food prices in January. And now the Nixon Administration is relaxing the guidelines on wage increases. The President may yet decide to crack down on the violators of Phase III by using that "stick in the closet." But most economists still expect inflation to be a much bigger problem than last year.
There are a few favorable factors in the inflation picture, to be sure. The White House is attempting to prove that it means business on inflation. Administration officials have changed their rhetoric on Phase III's meaning. Their talk has shifted from praising voluntarism and self-administration to threats to clobber firms and unions that step out of line.
And revisions will no doubt be made if Phase III proves to be ineffective. The President has the power to reinstitute the mandatory controls. Or he can again require prenotification before prices are increased and big wage settlements are paid.
FURTHERMORE, GOVERNMENT POLICIES WILL BE ANTI-INFLATIONARY this year. It looks as if spending in fiscal 1973 really will be held to $250 billion. The proposed Budget for fiscal year 1974 will not be inflationary, either. A tightened monetary policy will also help to reduce inflationary pressures. The Federal Reserve will be providing less credit, pushing up interest rates.
Officials at the "Fed" are deeply concerned that too much demand may reemerge, bringing a round of big price hikes and undoing all of progress on inflation made in 1972.
OFFICIALS ARE ALREADY DISCOURAGED BY RECENT JUMPS in price indexes. Wholesale prices rose sharply during the winter at a big 16% annual rate. These advances are now showing up in alarming increases in consumer prices. It's true that much of the increase must be blamed on higher food prices. But industrial prices-a major factor in the long-run trend of inflation-have been climbing, too. And food prices will keep rising through mid-year.
THE WHITE HOUSE DECISION TO RELAX ITS WAGE GUIDELINES only aggravates what was already becoming a sticky question facing the economic stabilizers. The big, militant labor unions come up for bargaining on contracts in 1973-with nearly twice as many workers being affected as was the case last year. The rank-and-file will be looking at the zooming bills at the supermarket. They will prod their leaders to push hard for really large wage increases.
But the old 52% guideline won't be there to tell the unions "no dice." The President has bowed to the AFL-CIO's Meany, to keep labor cooperating. A new 7½% maximum will become the prevailing wage settlement for those strong enough to get it. Unit labor costs have got to go up when wages are increased at the same time that productivity advances will be slowing.
THERE ARE SOME OTHER DANGER SIGNS. The economic pace is so strong that some bottlenecks are developing, bringing shortages and higher prices. Imported products are going to cost more as the result of the devaluation. And U.S. firms may raise prices to capitalize on less competitive imports.
IT ALL SEEMS TO POINT TO AN INCREASE IN THE PRESSURE of inflation. To be sure, it's very early in the year too soon to come to firm judgments. And White House experts are holding to their forecast of a 3% rise for 1973; circumstances might just break right for them so they meet their objectives. But most experts believe the inflation rate will rise from last year's 3.2%. They believe the rate will increase to at least 32%... and very probably 4%.
A minority sees the inflation rate zooming to 5% or even higher this year-marking a return to the disturbing behavior of 1970 that led to the wage-price controls.
THE CONSUMER'S PSYCHOLOGY IS BEING DAMPENED by quickening inflation. A small but growing number of government economists believe his confidence in the outlook for business and his personal situation is being sapped by the steady erosion of his buying power at his neighborhood supermarket. Consumers might well start taking defensive action soon as in early 1971. To make sure that incomes cover tomorrow's price hikes-as well as today's they could begin to reduce spending for "luxuries" largely durable goods.
This is the area of recent economic strength. A change could weaken the upthrust. There are already questions about the strength of consumer spending beyond mid-year.
CONGRESS MAY GIVE THE PRESIDENT A LITTLE TROUBLE on trade legislation-not by opposing him, but in pushing for a tougher law than he thinks needed. Winning a fairer shake for American industry abroad has very strong support, even among Democrats in Congress who are fighting with Nixon over spending.