Is Inflation Coming?

Is the U.S. due for another puff of inflation? Last week, as a scattering of price increases showed up in the wake of the steel price increase two weeks ago, many a businessman feared that it was. Philco Corp. warned that high raw material and increased labor costs "are contributing to another round of higher production costs." Youngstown Kitchens announced a10 1/4% boost in factory prices. Dun & Bradstreet, which asked 1,104 businessmen what they intend to do about prices in the last quarter of this year, reported that 26% said they expected to raise them (in April, in answer to a similar question on third-quarter prospects, only 18% said they planned boosts).

In Detroit, automen estimated that the General Motors and Ford wage increases, together with the higher steel price and an expected increase in the prices of parts, may add an average $100 to the list price of a car.

Furthermore, an increasing number of businessmen were thinking of adding to their inventories, partly because of better business and partly because of the prospect of higher prices. Dun & Bradstreet reported that 35% of the businessmen questioned in a poll planned to carry bigger inventories (compared to 29% last April). The Department of Commerce noted that at the end of May, dollar value of manufacturers' inventories totaled $43.6 billion, a one-month gain of $300 million.

A Bargain. But many businessmen predicted a stable price level--or even a drop in some prices. Ben Moreell, chairman of Jones & Laughlin Steel Corp., last week called a press conference to 1 ) defend the steel price increase, and 2) argue that it would not necessarily lead to a general increase. Since early 1951, steel prices have gone up 23% but the general price index has declined 5.6%, partly be cause of lower food costs and partly be cause of improved manufacturing meth ods which cut retail price tags. Said Moreell: "We have had a stable price level for the past two years ... Of it self, the wage settlement was neither inflationary nor deflationary. Improvements in methods may very well overbalance the costs of the wage increase. We call it improvement in production procedure . . . I happen to believe that steel is a hell of a bargain at the present price, and it need not affect the cost of living, though it may change some buying habits."

Price Cutters. The best argument against a general price increase is the fact that the greatly expanded U.S. industrial plant is turning out such a flood of goods that competition and price cutting seem bound to keep prices in line. Even though the list prices of cars, appliances and radios might rise, there is not much chance of an immediate rise in the price consumers actually pay. Autos were selling last week at anywhere from 15% to 25% under list prices, and even manufacturers were, in effect, cutting their prices to dealers by bonus plans.

But for all the pressures working to keep prices down, there were still some signals of possible trouble ahead. Consumer buying was still on the increase, and consumer debt was at an alltime high, reaching some $32 billion in June v. $28.6 billion in June 1954. Consumers were also saving far less than a year ago. During the first quarter of 1955, individuals saved only $1.7 billion, less than they had in any quarter since the middle of 1952. The industrial commodity index, which often foreshadows a retail rise, was edging up. Last week the Department of Labor reported that it was up to 116.2 (1947-49 equals 100), a seven-day gain of 0.4%, and the highest level the index has reached since the first half of 1951.

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