The Carter administration yesterday raised its estimate of this year's likely inflation rate to nearly 7 percent, and the president warned congressional leaders he will veto any spending bill that threatens to take the budget beyond the $500 billion he proposed last winter.
The administration had earlier estimated that this year's inflation rate would be 6 to 6 1/4 percent. But Charles L. Schultze, chairman of the Council of Economic Advisers, said in a speech yesterday that it now looks as if consumer prices will rise about 7 percent, mainly because food prices and the cost of imported goods have gone up faster than expected.
Earlier in the day, Carter met with House and Senate Democratic leaders at the White House, in their regular weekly strategy session.
House Speaker Thomas P. O'Neill Jr. (D-Mass.) said that at the breakfast meeting Carter was "very strong to keep the budget within a reasonable cost. There will be no compromises. He intends to stay with his figures."
O'Neill spoke with reporters as the House prepared to begin debate on the 1979 federal budget. The House Budget Committee has recommended a budget several hundred million dollars larger than the one proposed by Carter.
Last week the Senate approved a target 1979 budget (for the spending year starting Oct. 1) that would spend a billion less than the president's proposals and, like the House committee, would delay the president's proposed $25 billion tax cut from Oct. 1 until Jan. 1.
Congress is worried about inflation, and many members, as well as Federal Reserve Board Chairman G. William Miller, think that postponing the tax cut will trim $5 billion off next year's budget deficit and help fight inflation.
Carter said last week that he remains firm on his whole tax package - which includes $34 billion of tax cuts offset by $9 billion in revenue-raising "reforms" - including the Oct. 1 date.
Yesterday Schultze said that postponing or reducing the tax cut would have almost no impact on inflation but might well cause economic growth to taper off, risking a rise in unemployment next year.
Were inflation caused by shortages or by excess demand on the part of consumers and business, Schultze said, then a case might be made for reducing the size of the proposed tax cut. But that is not the case, he said. Today's inflation has its roots in the double-digit price increases of the early and middle 1970s and is caused by a chain of wage increases chasing price increases which in turn cause further price increases.
As it is, Schultze said, the administration has also scaled down its estimates for economic growth next year, in part because inflation has eroded consumer incomes and in part because higher interest rates mean that homes will be built at a slower pace next year. But he said that the administration still expects the unemployment rate to be down to 5 3/4 percent by the end to 1979.
Without substantial tax cuts, Schultze said, the inflation rate would remain about the same but there would be 1 million fewer jobs created over the next 18 months.
The president would not be able to veto the budget that Congress is supposed to agree to by May 15 because it is a resolution, not a bill, but he could veto any piece of spending or taxing legislation Congress passes.
Rep. Robert N. Giaimo (D-Conn.), chairman of the House Budget Committee, said the $500.8 billion budget the committee sent to the floor, with a $58 billion deficit compared to the president's $61 billion deficit, will fight both unemployment and inflation.
Last year the House had a difficult time satisfying liberals and conservatives, and it had to make two tries at writing this year's budget.