Inflation Watch

The insatiable demand for goods and services that is the primary spur to galloping inflation has one beneficial effect: it is putting. more people to work. In June, the unemployment rate dropped from 5% to 4.8%, lowest in three years. Unfortunately, that progress was bought at a harrowing price. In early June, just before the freeze, the Wholesale Price Index climbed at an annual rate of 27.6%. The steep climb underscored the need for the freeze, which, with one major exception, has brought the increases to a screeching halt.

That exception is in the food industry, which continues to be hit by shortages caused by a combination of the high costs of raw materials and low price ceilings for finished products. In response to the widespread complaints of food suppliers, officials of the Cost of Living Council hint that food price ceilings at the wholesale and retail levels may loosen, but not enough to let sellers pass on the full brunt of increased production costs to their customers. Thus, potato-chip makers would be able to recoup some -but not all -of the rising cost of cottonseed oil, in which chips are fried. Candy makers, who are squeezed by the high costs of cocoa beans and nuts might be permitted to raise the price of 100 chocolate bars -or decrease the size of the bars.

The loosened food controls may foreshadow the program that the COLC will adopt in Phase IV. When controls were relaxed in the past, and producers permitted to recover their increased costs by raising prices, there were immediate "inflationary bulges." To prevent that, the COLC may require producers to absorb some increases. COLC Official John Larson concedes that this would not be popular with businessmen because it would cut into profit margins. Says he: "It's not the kind of idea people snuggle up to quickly."

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