War & Prices

Into the mails last week went Montgomery Ward's regular annual bargain catalogue (good until Feb. 28). It met a roughly 10% cut announced two days earlier by Sears, Roebuck (except on refrigerators). Although leather prices have risen 10% since August, the catalogue's shoe prices are down around 10%. Grey-goods prices have risen 15%, but its cotton sheet and print items are down around 14%. Farm prices have risen 6% since August, and these reductions should give the farm section of the mail-order customers a powerful lift in buying power.

Sears and Ward were able to lower their retail prices in the face of higher wholesale prices because they began covering their needs through the first half of 1941 before price rises started. All through 1940's second half, they had manufacturers rushing delivery on the long-range orders they had placed at bargain prices. Meanwhile, department stores, who mainly had had less foresight, had to pay spot prices for rush orders in rising markets, and raise their own prices. The next question is whether Sears and Ward will have to raise their prices as they reorder in a rising market.

Last week this question was analyzed carefully in a long memo from the office of Isador Lubin, Commissioner of the Bureau of Labor Statistics. The memo recalls that World War I's first 16 months brought no price rise, that as late as December 1915 wholesale prices were only 6% above 1913, living costs only 5%. The early part of World War II presents a close parallel: when it started, the wholesale price level was 74.6% of the 1926 level, had been declining almost steadily ever since the end of the 1937 inflation.

In 1939's sorry first half (TIME, Dec. 30), the decline was sharpest in farm prices (by mid-August, 40% under 1926) and foods (34% under 1926). Before World War II, wage-earners' living costs were only 9% above the depression's low, while total wage payments were 60% higher.

On the night of Aug. 31, Hitler jumped Poland and on Sept. 1, the Bureau of Labor Statistics' Index of 28 spot prices jumped 4%. By Sept. 5, when England and France were in, these speculative prices were up 14% over August's average, by Sept. 22 they were up 27%--to a World War II high. The sharpest rise occurred understandably in import necessities: wool tops up 50% in two weeks, shellac up 74% in three. The more representative all-commodity index, reflecting industrial as well as raw commodity prices, reached a peak at 79.5, up only 6%.

But by the year's end, the false boom was over and prices slipped again. Although food staples from sugar to navy beans had boomed in September, the average wage-earner's food costs rose only 5% over August's level. By December, most of this was wiped out and living costs were lower than in December 1938.

From mid-December 1939 to mid-August 1940 prices fell 16%, their fall interrupted only by the Blitzkriegs against Scandinavia and the West. After each new offensive, prices continued their decline.

By Aug. 13, the index of 28 spot prices was only 5 1/2% above August 1939, lard and hides were down over 35% from World War II's high, wool tops and wheat down 20%. Ten of the 28 commodities were selling under pre-war prices.

In spite of this, retail prices rose about 1% in 1940's first half. Main retail advances: bread (1-c- a loaf in northern cities) and woolen and silk apparel. Offsetting this over-all rise, home furnishing prices fell 2 1/2% (paced by a 10% to 15% decline in refrigerators).

August 1940 corresponds on World War I's timetable with the point in 1916 at which the heat was turned on production.

Since August prices have not risen sharply and spectacularly--as at World War II's outbreak--but steadily and unobtrusively.

In 14 successive weeks from mid-August, the index of 28 spot prices crept up 12% to a point 18% above pre-war levels, only 8% below the previous fall's false war boom. But whereas 1939's false boom was really confined to raw commodity prices, 1940's advance carried up practically all prices of manufactured goods. By mid-November, when the spot-price index was still under its September 1939 peak, the Bureau's much broader index of 863 wholesale prices had passed the 1939 peak, was up to 79.7% of its 1926 average. In short, manufacturers and processors all along the line had passed on their higher raw material costs to their customers and ended by charging the ultimate consumers for some raw material increases that had been wiped out or had never occurred.

Price pyramiding in the lumber industry was outstanding. Late in August, the Army's cantonment orders hit the lumber markets (particularly southern pine & Douglas fir). In two months, the price of yellow pine timbers jumped 27% and stayed there--although the Army's ordering was finished in one week. By December, each week brought a new markup in a different type or grade of lumber.

Last week, Masonite Corp. put wood fibre board prices up $2 per 1,000 feet (6%).

U. S. Gypsum and other suppliers of similar materials deliberated following suit.

In the case of wool, the full effect of the 25% price rise in raw wool was aggravated by lack of capacity for converting it into wool tops, from which worsted fabrics are made. Result: wool top prices rose considerably more than raw wool. By November, the pressure was moving onto the dyers and apparel makers, whose prices are so far little changed. The woolen industry planned on raising prices to apparel manufacturers by 10%, if the Army wanted to outfit 1,300,000 men. The industry talked of doubling the price increase and of rationing civilian supplies as well, if orders came to outfit 4,000,000 men.

Textile Economist A. W. Zelomek forecast as much as a 15% price increase in goods made from virgin wool, a 5% increase in goods made from reworked wool.

Even cotton manufacturers, who have not been able to plead higher raw-material prices, have pushed broadcloth prices up from 4 to 25%, print cloth 13 to 14% anyway. By December this wholesale price situation had raised store prices from one to four percent over pre-war levels for suits, underwear, sheets and blankets.

Commissioner Lubin's memo ends by pointing out that living costs rose about 1 1/2% during World War II's first 15 months (from 98.6% of the 1935-39 aver age in August 1939 to 100.1%). It fore casts a general advance, bringing retail prices into line with wholesale prices. But for 1941's first half, assuming relatively steady food costs and no runaway in rents in Defense centres, it anticipated only another 2-3% increase in living costs. The memo does not attempt to answer the biggest question of all: Whether retail prices will run away, as in World War I, when the materials whose wholesale prices are now pyramiding reach retailers' shelves next fall.

One of the most stringent of U. S. war shortages to date is in brier wood for pipes (normally imported from Italy, France, Algeria}. Imports have dropped off 93% and pipe makers are now considering as ersatz mountain laurel, mesquit , western yew.

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