The Carter administration tightened its voluntary price standards yesterday in an effort to forestall a "serious surge of prices in April and May."
Instead of taking half of their allowed annual increase as soon as they wish in the second six months of a years, many companies can now take only one-quarter of the annual amount in the next three months.
"It now appears that many companies may be planning to raise their prices by the full allowable amount at the beginning of the second six months period," said Alfred Kahn, chairman of the Council on Wage and Price Stability, in announcing the change.
"This could lead to a serious surge of prices in April and May," Kahn said. April marks the beginning of the second six months of the program, which began last October.
Aluminum Company of America, which had just announced an average 4.5 percent price hike on primary aluminum and a wide range of fabricated products effective April 2, immediately said it would roll back the increase because of the change in the standard.
Companies generally can raise their prices by no more than the average by which their prices went up in 1976 and 1977. The allowable increase for Alcoa apparently is about 9 1/2 percent, or 4 3/4 percent for six months.
Now that much be cut in half under the new standard, which is that increases cannot exceed three-fourths of the allowable annual increase during the first nine months of the program. COWPS, however, said that companies with special seasonal pricing practices might be excepted.
For weeks, Kahn has been complaining, as he did earlier this week before the Chicago Economic Club, that some companies were regarding the standards "as not just ceilings but floors" and that they were taking "their permitted increases at the earliest possible moment."
Yesterday Kahn declared, "It is... not in keeping with the spirit of the program for firms to speed up the timing of their price increases. This would be not only inflationary but also inequitable in relation to the treatment of wages, since the standards do not contemplate acceleration in the timing of wage increases."
Administration economists had been seeking for some time to provide labor unions with some evidence that the administration was trying to crack down as hard on business as on labor.
The officials are deeply concerned that the recent surge in both producer and consumer prices to double-digit levels may mean an end to union compliance with the 7 percent wage increase standard.
Consumer prices rose at an 11.4 percent annual rate in January and probably just as fast in February. The Producer Price Index has risen at 1 percent or more in each of the last two months.
Also yesterday Treasury Secretary W. Michael Blumenthal told the Washington Press Club that the increases in the rate of inflation in recent months does not mean that the anti-inflation program has failed.
Blumenthal said the program is still too new to have an effect on the current rate of inflation, and that the rapid increases in food and fuel prices will moderate in coming months.
In another development, the Commerce Department said that manufacturing and trade inventories increased $5.4 billion in January to a level of $384.8 billion. That compared with only a $2.8 billion rise in December.
Some business have been reported to be losing sales because of low inventories, and some of the recent price increases have been attributed to buyers scrambling to build up their stocks both to hold sales and beat future shortages and price increases.