Farm prices, interest rates and the prices of industrial raw commodities such as crude oil or copper will not be covered by the price guidelines in the President's voluntary anti-inflation program, the administration said yesterday.
But the standards require any company whose labor costs decline by more than 0.5 percentage points from the average in 1975 and 1977 to moderate its prices more than the general guideline.
Last week the President asked companies to keep their price increases over the next 12 months a half percent below their average of 1976 and 1977 and asked workers to hold their wage and fringe benefit increases to 7 percent.
Yesterday the administration issued a 25-page set of "details" to explain those general standards.
Barry Bosworth, director of the Council on Wage and Price Stability, said companies should interpret the standards, "like they interpret the tax code. The standards are meant to be self-administered."
He told reporters that the program will try to keep paperwork "to a minimum," but said if the effort to reduce inflation is to be successful, "each and every company, especially the 400 largest, must be prepared to develop an accounting framework," so the company can measure its performance against the standards.
Top administration officials - including Treasury Secretary W. Michael Blumenthal, inflation counselor Robert Strauss and Council of Economic Advisers chairman Charles L. Schultze - make an appearance in St. Louis this morning to explain and sell the program.
The St. Louis trip will be the first in a series of administration anti-inflation meetings around the country. Another is slated for Hartford, Conn., next week.
Although the new regulations formalize the general guidelines announced last week by the administration, they do not add any major changes to the thrust of the program.
They do contain several complicated formulas for determining base prices for companies and compliance for union contracts.
But Alfred Kahn, who will head the anti-inflation effort, told reporters that they "don't need to read the formulas. They merely duplicate the verbal explanation of the standards. They were put there for the few people" who like to read equations, Kahn said.
Among the highlights of the regulations:
The 7 percent pay standard includes not only wage increases and new fringe benefits, but also the increased cost to the employer of maintaining the same level of benefits. So, if an employer must increase his contributions to an insurance plan because premiums went up, that counts as part of the 7 percent limit.
Companies should stretch out their allowable price increases, rather than taking them all at once. If a company raised its prices an average of 6.5 percent in 1976 and 1977, it is allowed a 6 percent increase. The regulations say companies should raise prices no more than 3 percent during the first six months of the year and take the remaining 3 percent during the final 12 months.
Companies should calculate their base rate of price increase by measuring their price increases from the last complete fiscal or calendar quarter in 1975 to the last complete quarter in 1977. (The formula for the base rate of price change tells a company to divide its average price in the last quarter of 1977 by its average price in the last quarter of 1975, take the square root of the result, subtract 1 and multiply by 100.)
After it determines its base rate of price change, it should knock off a half-percentage point for its allowable rate of price increase between the third quarter of 1978 and the third quarter of 1979. Companies may use either fiscal or calendar quarters, but must be consistent.
Companies that must exceed the general "deceleration" standard (except for the items such as farm prices that are not covered) cannot raise prices by more than 9.5 percent in any event and must insure that their profit margins (profits as a percentage of sales) do not increase. The base profit margin is the average of the two best profit margins in the three fiscal years completed before Oct. 1, 1978.
The 7 percent pay standard does not apply to collective bargaining contracts signed before Oct. 24, 1978 or to contracts signed after that date if there was a written or oral agreement on wages and benefits before Oct. 24 or a written management offer on the table that was not exceeded.