Just How High Is "Up"?

Every time the Agriculture Department tries to guess how high food prices will go this year, it gives consumers another nasty shock. The department started off last fall by predicting a 4 1/2% rise, later raised its estimate to 12%. Last week it confessed that even that figure was too low; it now calculates that food prices for all of 1973 will average a devastating 20% higher than 1972, making this year's rise the steepest since 1947. And that puts the expectation conservatively; if the average for the whole year is that much higher, food prices at the end of December could easily be 25% above those on Jan. 1.

The department's gloom was promptly confirmed by a startling leap in grain prices, which are now going up even faster than meat. Last week traders in the Chicago commodity pits sold wheat for future delivery at more than $4 per bu.--the price was $1.76 only a year ago--and corn for more than $3 v. $1.30 twelve months ago. Both records were as lofty to commodity traders as Babe Ruth's total of 714 home runs once was to baseball buffs. Prices are almost sure to go higher still. In order to control speculation, commodity exchanges impose limits on how much prices can rise on any day; every morning a burst of frenzied activity pushes prices up to the limit within minutes after trading opens, and traders sit around idle the rest of the day because no one will sell until prices are permitted to rise again. Some traders believe that wheat could hit $6 per bu. by the,end of this month. That could add 9-c- to the price of a loaf of bread now selling for 27-c-.

Prices are being pushed skyward by a worldwide commodity shortage (see following story). To increase output in the U.S., President Nixon last week signed into law a bill that Secretary of Agriculture Earl Butz hailed as "a historic turning point" in U.S. farm policy. The measure frees farmers from any acreage controls, allows the prices they get to be set by supply and demand in the market, and guarantees them cash payments if those now soaring prices should ever fall below target prices set by law. Meanwhile, foreigners are bidding successfully against domestic users for present supplies; with the crop year less than two months old, nearly half the total potential U.S. supply has been sold for export.

Some Administration economists are urgently recommending that export controls be slapped on grains as the only way to bring domestic prices down. Such controls were placed on soybeans and some other products last month. But top officials are reluctant to restrict wheat and corn shipments. They have been counting heavily on huge exports of farm goods to help shrink the U.S. balance of payments deficit. Some commodity experts believe anyway that only a total embargo on exports--which would mean holding back grain already committed for export--would break the price spiral. Less drastic controls might only anger foreign buyers without stopping the price rise.

Some Rollbacks. The inflation news can only get worse in the next few months. The freeze that President Nixon imposed in June created a backlog of price increases that sellers were not able to post, and more and more such increases will be made in the next few weeks. Under the complicated rules of Phase IV, most retail food prices can be raised now only to reflect higher costs of the raw farm products, but after Sept. 12 they can be boosted by additional amounts in order to pass on to consumers the increases in such other costs as transportation and food-industry wage rates. On the same day, the ceiling comes off beef prices--though by that time the freeze-triggered shortage may have emptied market shelves and packing houses. While petroleum remains tightly controlled, with the Administration even pledging to roll back gasoline and heating oil, the freeze on most nonfood prices ended at midnight Sunday, and hundreds of companies that have sales of less than $100 million will be raising prices on all sorts of goods this week (bigger companies have to give the Cost of Living Council 30 days' advance notice of price boosts). When recent sharp increases in mortgage interest rates are figured in, the consumer price index for August and September is likely to look as if it were climbing a cliff.

That, in turn, could inspire consumers to zip their pockets tightly and perhaps even pitch the nation into a severe recession. Administration officials recognize the dangers. Phase IV "is hanging by its thumbs," says one economist, and soaring food prices are likely to undermine public confidence in it altogether. But the officials do not see much that they can do other than enforce Phase IV rules strictly, wait for a cooling economy to ease price pressures, and meanwhile indulge in some gallows humor. Last week Republican Senator Henry Bellmon of Oklahoma offered to bet that by Election Day in 1974, grain will be in substantial supply and growers, not consumers, will experience "price difficulty." Somewhat disconcertingly for consumers, his wager was taken by Butz, the man who presumably has the best information on supply and price trends--and who is betting that supplies will still be tight and prices high. The two deposited $1 each with Senator Hubert Humphrey, under a "memorandum of wager" suggesting that Humphrey pay the winner $2.25--to reflect current soaring interest rates.

This file is automatically generated by a robot program, so reader's discretion is required.