Credibility and Controls

PRESIDENT NIXON had good reason for confidence when he ordered formal wage-price controls replaced by the more voluntary restraints of Phase III last January. Increases in the U.S. cost of living seemed to have been brought down to tolerable levels. Since then, though, there has been more and more reason for the rest of the nation to start worrying. Inflation seems once again to be getting out of hand, despite repeated assurances from the President and Treasury Secretary George Shultz that Washington retains ample authority to crack down on price boosters. There was even more concern last week after the Government reported that in February the unadjusted wholesale price index jumped 1.9%, the biggest monthly rise in 22 years. With that, in an obvious attempt to regain its credibility, the Administration reached for its vaunted "stick in the closet" and reimposed direct controls on the nation's 23 biggest oil companies.

The Cost of Living Council will permit oilmen to raise average prices on their product mix--crude petroleum, gasoline, heating oil and other refinery products--by no more than 1% without advance Government approval. If justified by greater costs, such as a rise in the price of imported oil, companies may get increases up to 1.5%. The council let stand the sharp price boosts in heating oil that many companies posted after Phase III began on Jan. 11. But these hikes will be considered part of the companies' allowable yearly increase and have already eaten up a substantial part of it.

Administration inflation fighters remain vague as to whether the move signals the start of a new round of controls that might be extended to other businesses. Indeed, COLC Chairman John Dunlop denies that the oilmen are being used as whipping boys to warn other businessmen to stay in line. Why then were the oil companies singled out? Mostly in order to head off an explosive price rise in gasoline this summer when an anticipated shortage of gas during vacation season is all but certain to nudge prices upward. Without strict regulations, distributors could make a killing by demanding stiff premiums from filling-station owners who want to be well supplied. That tactic would be quickly reflected at the gas pump--and to millions of motorists, no sign of inflation is more noticeable than the price they pay when they say "Fill 'er up."

Visible. News of the Administration's stand sent oil stocks tumbling, but analysts in and out of the business view the move as primarily a political step that will have little immediate impact on industry profits. Meanwhile, an even more visible indicator of inflation, food prices, continues to fly high. In February, seasonally adjusted wholesale-food prices, which take a month or so to be reflected at supermarket checkout counters, soared 3.2%. Over the past three months, the annual rate of increase for wholesale food has been a painful 56%. Last week even the usually confident chairman of the Council of Economic Advisers, Herbert Stein, sounded uncertain. Said Stein of the wholesale report: "The figures just released emphasize the need to keep a very strong economic expansion now under way from turning into an inflationary boom."

Many labor leaders, economists and legislators believe that the only way to do that is to go back to formal controls on many products besides oil. In approving a one-year extension of the President's power to regulate wages and prices last week, the Senate Banking Committee barely defeated, by a tie vote, a proposal requiring a return to mandatory controls. AFL-CIO Chief George Meany has said that labor unions, in major contract negotiations covering almost 5,000,000 workers this year, will not be bound by the Administration's rubbery guideline of 5.5% if food prices continue their upward march. Robert Nathan, a member of TIME'S Board of Economists, predicts that negotiated wage increases this year will average about 7%. In addition, he forecasts, more contracts than ever will contain potentially inflationary escalator clauses that will automatically add to paychecks an amount equal to the entire future rise in consumer prices. So far, says Nathan, Phase III "has been a terrible story of failure. I think the only way out of this inflation is to go right back to Phase II."

Worried COLC officials are even exploring the possibility of bringing presently unregulated farm prices under control. Official thinking still holds, though, that such a move would only give rise to black markets. The Administration line remains that recent moves to increase farm production will cause food prices to level off and then decline later this year, that other prices can be held steady without mandatory controls, and that COLC Chairman Dunlop's bargaining skills will keep unions from getting outsize wage boosts. But the burden of proof is squarely on Nixon and his aides.

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