Kahn Do?

Price shock spurs doubts

For inflation-weary consumers, the news from the Labor Department last week hit like a blast of arctic air: the January Wholesale Price Index rose by 1.3%, or at an astonishing annual compounded rate of 16.8%. That was more than double the rate for all of 1978 and the biggest monthly jump in four years. The index, which usually foreshadows trends in retail prices, was lifted in part by the soaring cost of farm products, especially beef and veal, which rose 13% for the month. But finished goods like cars and appliances rose at an even steeper pace: 15.4%.

The big rise in nonfood prices suggests that many manufacturers are betting that a period of vicious inflation leading to mandatory price controls lies ahead, and are kicking up prices before the controls are imposed. Feeding these inflationary expectations are the gloomy forecasts of a number of alarmist economists who have been blowing taps for President Carter's voluntary Stage Two wage-price restraints almost from the moment they were announced last fall.

As if to prove that Stage Two is still very much alive, the White House inflation fighter, Alfred Kahn, has been busily talking up the program. Last week he called on shoppers to boycott retailers who could not explain stiff price increases. He also reported that so far 207 of the 500 largest corporations have agreed to go along with the price guidelines. None of the others, he announced, had as yet said, "To hell with you."

The Administration's Kahn-do posture got a boost last week when the House Ways and Means Committee opened hearings on the weakest link in the anti-inflation program: real wage insurance. The idea had been initially dismissed by most economists and politicians as unpassable and unworkable, but lately it has shown some staying power. Committee

Chairman Al Ullman, who was at first disdainful, noted there is "increasing resignation" that the proposal might pass in some form. Another early critic, Russell Long, chairman of the Senate Finance Committee, which must also pass on the measure, now says he is reserving final judgment until after the House acts.

The plan calls for persuading workers to accept annual wage boosts of 7% or less by offering them tax credits equal to the difference between a 7% pay increase and the real increase in the Consumer Price Index, up to 10%. Business organizations still oppose the idea as inflationary in itself. Big Labor now finds real wage insurance at least palatable, if only because some workers might get some cash out of it.

Still, many Congressmen fear that payouts from the program would bloat the budget deficit well beyond the $29 billion target set by the Administration for fiscal 1980. The White House calculates that based on an inflation rate of 7.5% for all of that period, real wage insurance should cost no more than $2.5 billion. But some forecasts point to an average inflation rate of 9% or more this year.

It will be late spring before this year's price trend will be discernible. Thus the inflation outlook will still be cloudy when the pacesetting Teamsters contract negotiations begin in earnest in March. If the truckers breach the 7% limit, other unions can be expected to follow. If that happens, the concern about controls reflected in last week's leap in wholesale prices may spread much farther.

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