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THE CHAIRMAN O F TH E COUNCIL OF ECONO MIC ADVISERS WASHINGTON January 8, 1973 M EM ORA N DU M FO R TH E P R E S ID E N T S u b je c t: D e c e m b e r W h o le s a le P r i c e Index W e h a v e j u s t h a d , i n D e c e m b e r , t h e b i g g e s t o n e - m o n t h r i s e in w h o l e s a l e p r i c e s of f a r m p r o d u c t s in e x a c t l y 25 y e a r s - - s i n c e D e c e m b e r 1 9 4 7 . T h i s w i l l b e a n n o u n c e d a s p a r t of t h e W h o l e s a l e P r i c e I n d e x t o m o r r o w m o r n i n g . W h o l e s a l e p r i c e s of f a r m p r o d u c t s h a v e i n c r e a s e d 18. 7% i n t h e p a s t y e a r - - a b o u t f i v e t i m e s a s m u c h a s i n d u s t r i a l p r i c e s . T h e r i s e of f a r m p r i c e s i s m a i n l y t h e r e s u l t of a s e r i e s of n a t u r a l d i s a s t e r s , g o in g b a c k a lo n g w a y a n d o c c u r r i n g a b r o a d a s w e l l a s i n t h e U n ite d S ta te s . P e r h a p s n a t u r e w ill e v e n tu a lly h e lp u s. H o w e v e r, it is g e t t i n g to l o o k l e s s a n d l e s s a s if t h a t h e l p w i l l c o m e i n 19 7 3 . T h e r e c e n t b e h a v i o r o f m a r k e t p r i c e s r e s u l t s f r o m t h e e x p e c t a t i o n of i n f o r m e d p e o p le th a t tig h t m a r k e t c o n d itio n s w ill e x i s t th r o u g h o u t 1973. T h e g r e a t d a n g e r in t h e p r e s e n t s i t u a t i o n i s t h a t c o n t i n u o u s r a p i d i n c r e a s e s of f o o d p r i c e s w i l l u n d e r m i n e t h e c o o p e r a t i o n of l a b o r w h i c h i s e s s e n t i a l f o r t h e p r e s e n t c o n c e p t i o n of P h a s e III. It s e e m s t o m e t h a t w e s h o u l d s e r i o u s l y c o n s i d e r e v e r y p o s s i b l e s t e p t o s l o w - u p t h e r i s e in f o o d p r i c e s , b o t h f o r i t s o w n s a k e a n d a s a s i g n of g o o d f a i t h w i t h t h e la b o r p eo p le. ~ T h e r e is a t t a c h e d a l i s t of s t r o n g m e a s u r e s t h a t m i g h t b e t a k e n t o d e a l w i t h f o o d p r i c e s in 1 9 7 3 . I t h i n k w e s h o u l d s e e w h e t h e r a n y of t h e m c a n b e a n n o u n c e d a t t h e t i m e P h a s e III is a n n o u n c e d . T h e r i s e of f a r m p r i c e s in D e c e m b e r w a s q u i t e w i d e s p r e a d , l a r g e i n c r e a s e s b ein g r e g i s t e r e d f o r g r a in s , liv e s to c k , p o u ltry , and eg g s. E x c e p tio n s w e r e f r e s h f r u its and v e g e ta b le s an d co tto n . P r i c e s of i n d u s t r i a l c o m m o d i t i e s , w h i c h c o m p r i s e n e a r l y t h r e e f o u r t h s of t h e w e i g h t of t h e W P I , a d v a n c e d 0, 1% i n D e c e m b e r , t h e s m a l l e s t r i s e of t h e P h a s e II p e r i o d o t h e r t h a n O c t o b e r 1972 w h i c h s a w a slight decline. Prices declined after seasonal adjustment in two sectors w h i c h have experienced strong inflationary pressures; hides, skins, leather, and related products and l u m b e r and w o o d products. However, even after the declines in these sectors their price indexes r e m a in e d respectively 22% and 13% above year-ago levels. The combined index, including f a r m products, processed foods and feeds and industrial commodities rose 1.6% in D e c e m b e r . This w a s 'v,r < * ■ "* the largest month-to-month increase in the total in over 20 years. T h e increase in the total over the past year was 6 . 5%. These data are for release Tuesday, January 9, at 10:00 a.m. Herbert Stein Six Actions to Combat Rising Farm and Food Prices Further relax planting restrictions on grains and soybeans Government-imposed restrictions on planting wheat, feed grains and soybeans in 1973 have been liberalized, but further easing of restrictions is possible and desirable. Sell stocks of farm commodities owned by the Department of Agriculture. 4 ^ ^ Government-owned stocks could be further reduced by an activist selling policy without depleting them below levels required for national security reasons. Terminate loans on farm-stored grains. 2/ Large quantities of wheat and feed grains are stored by farmers under loans from the Department of Agriculture. Requiring farmers to repay loans would bring more grain into the market. increase import quotas on cheese. 7 Quotas limit imports of all dairy products to only 1-1/2 percent of U.S. consumption. Cheese prices are very strong and quotas could be enlarged on a temporary basis under existing law. Discontinue subsidies on exports of food commodities. ^ For instance, the Department of Agriculture pays a 14-1/2£ per pound subsidy to export broilers. Quantities subsidized are small but not insignificant. Exports of other commodities are also subsidized. Cutback concessional export sales under PL 480, except those for legitimate emergency relief. PL 480 financed exports already have/ been reduced but could be cut back further. / , <l- < 'fl/ruX J - „ IU
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