A Lingering Phase-Out

"There is still a lot of inflation ahead of us," said Herbert Stein, chairman of the President's Council of Economic Advisers. In current context, he rates as an optimist. The Labor Department reported last week that retail prices in October rose at an annual rate of 9.6%, almost triple the September pace, and Otto Eckstein, a member of TIME'S Board of Economists, warned that inflation in the next three to six months will be "unbelievably bad."

Hundreds of companies have been bombarding the Cost of Living Council with notices of their intention to raise prices on products ranging from beer to brooms to brake linings. Automakers may hear from the COLC this week on their petitions for another round of price boosts; some increases are bound to be granted, and Ford and Chrysler warn that these will not be the last for the '74 models. Retail food costs--particularly those of bread and milk--continue to climb as increases in farm prices work their way to supermarket shelves. The Arab oil squeeze will further inflate the prices not only of oil and gasoline but also of plastics, cosmetics and countless other petroleum-based products. As a result of these pressures, the Nixon Administration will be forced to keep at least some wage-price controls in place much longer than it would like.

Peeling Off. The Administration has ruled out any abrupt relaxation of Phase IV's rules. Instead, COLC Director John Dunlop will preside over a lingering phaseout, during which controls will be selectively lifted on an industry-by-industry basis. More than 70 industries and companies have so far asked for exemptions, using, says Dunlop, "every conceivable argument that the mind of man can devise." At first, Dunlop and others emphasized granting exemptions when industry leaders promised reasonable price stability in exchange. Now the Administration hope is that by allowing prices to rise, the COLC will encourage companies to expand production and let domestic buyers compete with foreign purchasers, who can already pay any price that they wish. Explains Shultz: "Sometimes it makes sense to peel off [controls] even if you know there will be some large price increases."

The COLC this week will probably allow aluminum, copper and zinc producers large--but limited--price increases in exchange for a pledge to use the added revenue to build more plants. Earlier, the COLC sought a similar agreement with the fertilizer industry. Fertilizer has been short partly because of a scarcity of ingredients, including natural gas, and partly because foreigners were buying up so much of what was produced domestically by paying $25 a ton more than the controlled U.S. price. Dunlop got only a grudging commitment that fertilizer firms would reopen a few shuttered plants and expand production at some other factories. Price controls on fertilizer were nevertheless lifted altogether last month, and since then the companies have boosted their prices 30% or more.

The Administration is also thinking of eventually replacing the Cost of Living Council with a new, less potent federal agency. It would generally monitor the pace of inflation but would probably lack the COLC'S power to intercede in private price and wage decisions. Policymakers are intensely debating just what powers should be given to this agency. Federal Reserve Board Chairman Arthur Burns has proposed making it a permanent "wage-price review board," which would watch for egregious increases and then try to "jawbone" companies or unions into rescinding them. Shultz and Stein oppose jawboning because they think that it interferes with market forces and cannot be used fairly. They believe that a new agency should concentrate on stopping inflationary actions taken by the Government. In the recent past, bureaucratic infighting helped temper prices. Earlier this year, for example, the COLC practically forced Agriculture Secretary Earl Butz to allow farmers to expand acreage of several crops. As a result, the U.S. is enjoying a record harvest of food, which should ease the continuing rise in supermarket prices. It is doubtful, however, that an agency without a mandate to blow the whistle on private wage-price behavior could do an effective job --and even within the Government, the President himself would have to make sure that other bureaucrats listened when it spoke.

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