Overdue Drop in Food

Like the valve of a pressure cooker, Phase IV is supposed to slowly vent the explosive forces that are pushing up prices until waning demand can damp down the inflationary fire. Last week some welcome signs that the plan may work appeared. In Washington, D.C., the Cost of Living Council held unusual public hearings on price boosts requested by auto-and steelmakers, in an apparent effort to publicize its determination to allow only those increases justified by higher costs. Meanwhile, round the country, some of the heat indeed went out of the demand. Consumer resistance forced down some food prices for the first time in months.

The declines appeared mostly on chicken, eggs and pork chops. Chicken in Atlanta supermarkets dropped to 72-c- per lb., from $1 two weeks earlier; pork chops in Los Angeles sold as low as $1.65 per lb., down 44-c- in two weeks. In New York City, the cost of buying a market basket of foods priced weekly by the Department of Consumer Affairs fell 2%, the second consecutive drop after weeks of exceptionally steep rises.

Store managers generally agreed that consumers for the moment are refusing to buy some of the foods that have risen most sharply in price. Says Bill Walmsley, owner of Serv-U Meat Packing Co. in Los Angeles: "People back away, the supplies keep coming, the price has to drop." Beef prices so far are sticking at their highs, but Agriculture Secretary Earl Butz predicts that they will go down at least briefly after Sept. 12, when the price freeze on beef ends and suppliers will send to market cattle that they have been holding back from slaughter.

The declines that have occurred so far have left prices still sky-high by any standards except those of the past month or so. Moreover, what little relief there has been is all too likely to prove temporary. Consumers obviously have to eat; if they switch from buying pork chops, say, to buying frankfurters, the price of pork chops may drop, but the price of frankfurters is likely to rise. In addition, the Agriculture Department reported last week that the average price of raw farm products went up a record 20% in the month ended Aug. 15; sooner or later that rise will push up prices on grocery shelves. Still, the recent declines are long-overdue proof that food prices can go down as well as up.

Autos Up. In other parts of the economy, the pressures are all for higher prices; the chief question is how vigorously the COLC will resist them. Automakers are likely to get the full increases of $61 to $106 per car that they argued for at last week's hearings. Industry officials contend that these raises will only cover the added cost of new safety features that the Government requires on 1974 models. The new cars must have stronger rear bumpers and roofs, and a system that prevents the driver from starting the engine until he fastens his seat belt.

The steel-price requests will get much closer scrutiny. Steelmakers are asking for increases of around 5% on pipe, sheet and strip. Those raises were scheduled to go into effect two months ago but were held up by the latest price freeze. Steel executives argued at last week's hearings that the increases are needed to provide money to expand their plants. Some add privately that they can present cost data that would justify a lift of 6%. Their case was weakened by unrelated but embarrassingly timed indictments handed down by a federal grand jury, charging U.S. Steel, Bethlehem, Armco and 14 smaller companies with fixing prices on certain products in Texas.

The COLC did not tip its attitude at the public hearings. One staffer, though, expresses worry that "the ripple effects of a steel-price increase are far-reaching and long-lasting," deeply affecting every industry that uses the metal in its products. One certain effect would be to magnify a second round of auto-price raises that is sure to come after the carmakers sign new wage contracts. Consequently, the COLC may possibly hold up some of the requested steel boosts.

The council has until Sept. 13 to make up its mind; the increases will go into effect automatically then unless it stops or modifies them. In reaching decision, it must weigh not only cost data but the likely effects of its ruling on business psychology. Right now that psychology is dominated by anticipation of more inflation. The National Association of Purchasing Management reported last week that 69% of its members paid higher prices for materials that they bought for their companies in August--and fully 90% expect prices to go higher still in the fall.

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