Rising food and fuel prices will add more than a percentage point to the administration's inflation estimates for 1977. Office of Management and Budget director Bert Lance said yesterday.
The economy will not grow quite as fast as predicted last February, but the unemployment rate is expected to average 7.2 per cent this year, close to the February estimate of 7.1 per cent.
The revised economic estimates were sent to the House and Senate Budget committees and several other congressional offices as part of a general administration review of the federal taxing and spending plans for this year and next.
In another development, the Senate Budget Committee, angered over the Carter administration's decision to drop the $50-a-person tax rebate, asked the administration to send officials early next week to explain the economic justification for dropping the rebate.
The letter, which was to be sent to the White House late last night, was signed by chairman Edmund S. Muskie (D-Maine) and ranking minority member Henry S. Bellmon (R-Okla.).
Muskie said yesterday that the fiscal policy Congress set last month, in conjunction with the White House, should not be altered "unless there are significant and persuasive economic reasons for doing so."
At a hearing yesterday, economists for the majority and minority staffs of the Senate Budget Committee said there had been no significant change in the economy or in the underlying developments which led Congress to approve a stimulus package.
The committee also wants administration officials - presumably Lance, Council of Economic Advisers chairman Charles L. Schultze and Treasury Secretary W. Michael Blumenthal - to explain why federal spending is falling below projections.
Lance, in his budget review yesterday, said the deficit would be $19.3 billion smaller than projected last February - $48.7 billion rather than $68 billion - because of $6.1 billion in spending shortfall, $12.2 billion less in tax rebates and business tax cuts, and $1 billion in higher revenues.
In fiscal 1978, which starts October 1, the administration re-estimated a deficit only $100 million higher than it first guessed - $57.9 billion instead of $57.8 billion.
But it is still $5.2 billion bigger than this year's deficit and is moving in the opposite direction the President wants it to move if he is going to balance the federal budget by fiscal 1981, as promised.
In re-estimating its economic assumptions, Lance said the administration included the impact of the severe cold weather last winter and the continuing drought in the West. The administration scaled down its estimates of economic growth from 5.4 per cent to 4.9 per cent.
Because the weather pushed up food prices sharply, and because of special situations such as rising coffee prices, the administration said it now thinks the consumer price index will rise 6.7 per cent this year, compared with its original 5.3 per cent estimate.