Going Up

In a costly surge, manufacturers last week boosted prices on a wide range of products. Steel started it, with the rest of the industry following the lead of U.S. Steel and raising prices of cold-rolled, galvanized and aluminum-coated sheets by $5 a ton. The hikes will be reflected in the costs of such items as autos, appliances and heavy machinery. Before the week was out, increases were announced in carpets, chemicals, plastics, flooring and glass.

Anticipating a probe from the Administration, U.S. Steel's Chairman Roger Blough, veteran of the classic 1962 confrontation with President Kennedy over steel prices, turned wry in defense of his industry. Said Blough: "Washington can inflate the money supply with impunity, labor can raise wages far beyond gains in productivity, but hold steel prices down and everyone will be happy and rich--everyone, that is, except the steelmakers, of course."

Equal Scoldings. The Administration's first reaction to the steel price boost was to use it as further evidence of the need for a 10% surtax. Chief White House Economist Gardner Ackley gave equal scoldings to both labor and management, noting that the steel increase represented "another turn in the wage-price spiral." Speaking at a Washington meeting of the Business Council, President Johnson talked of responsibility: "We know that wage and price changes are inevitable--and desirable--in a free-enterprise system. But those changes must be restrained by a recognition of fundamental national interest in maintaining a stable level of overall prices. Nobody benefits from a wage-price spiral. Labor knows that it does not. You know that business does not. And surely the American people do not. Yet business says it is labor's responsibility to break the spiral, and labor says it is yours. I say it is everyone's responsibility."

Steel's move should not have come as a surprise. Steel producers have been increasing prices by bits and pieces throughout the year. Just before Labor Day, the Administration finally reacted when Republic Steel upped the price of steel bars by 1.8%. The industry ignored Government protestations. What is more, steelmen went to Washington in September, made it clear that further increases would follow.

Too Little, Too Late. The producers point out that during the first nine months of 1967, when profits were off as much as 30%, Ackley and the Council of Economic Advisers assured them that a turnaround was coming. Now that orders are finally picking up, the steelmen claim that the increase in business is too little, too late, and based on artificial conditions rather than on an upsurge in the economy. They credit the rise to the fact that automakers and other major steel users are stockpiling with an eye towards next summer, when the United Steelworkers are threatening to strike. Another major cause of friction between the industry and Washington is the Administration's refusal to levy higher duties on imports of cheaper foreign steel, which now accounts for 12% of the U.S. market.

When asked why U.S. companies continue to raise prices in the face of cheaper foreign imports, one steel executive threw up his hands: "They're already undercutting us by $20 to $40 a ton, so maybe we could better compete by going out of business."

Last week's price hikes are not likely to be the last. When demand picks up as expected, companies in many other areas almost certainly will raise prices to alleviate their profit squeeze. Moreover, labor leaders meeting in Florida last week were moaning over the lag in buying power brought on by the rising cost of living. They made it clear that they are looking for fat settlements in 1968, when contracts expire in such major industries as aluminum, aerospace, rail, telephone, shipping, coal mining, and--inevitably--steel.

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