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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
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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.
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Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102