The inflation that was centered in food and housing costs earlier this year has spread through the rest of the economy, and this year's inflation rate will be well over 7 percent, the administration said yesterday.
In a gloomy assessmented delivered as the administration readies a new anti-inflation plan, the Council on Wage and Price Stability noted consumer prices rose at an "ominous" 9.5 percent annual rate in the first eight months of the year.
Prices now should moderate a little, the report said, but even so, inflation for the year as a whole will be well over last year's rate, which was 7 percent.
Last January President Carter predicted the rate in inflation would be 6 percent this year. Food prices were rising faster than that, but administration economists felt they would slacken off.
That did not happen until July, however, and by then the inflation had spread to other sectors of the economy. Wage increases have picked up in recent months, and prices for raw materials also have been accelerating, the report observed.
In July, these factors led the administration to revise its inflation forecast to 7.2 percent for 1978. Now such officials as inflation counselor Robert S. Strauss are talking about a possible 8 percent rate this year.
The wage-price council said that when food and energy prices are taken out of the consumer price index, there is still a "substantial acceleration" in the so-called underlying rate of inflation.
The underlying rate "has moved up from an average annual rate of 6 percent in 1976-77 to an annual rate of more than 7 percent this year," the council said.
Because price increases are becoming larger all along the production chain - from raw materials to semi-processed goods - the outlook for the rest of the year is bleak. Increases in these areas "will put more pressure on the prices of finished goods later this year," the report said.
While wage increases also have accelerated, the average American worker is not better off, the agency noted. "The large increases in money wages have not resulted in substantial real income gains; they have been eroded by the even greater escalation of consumer price inflation," it said.
The council report did not give any overall explanation of why prices have been rising so much faster this year, although it cited the continuing decline in productivity (output per hour worked) and rising import prices caused by the declining value of the dollar.
Administration economists, including the council's director, Barry Bosworth, have contended that most of the inflation over the past several years has been caused by a tail-biting chase between wages and prices that has its roots in the big jump in oil and other commodity prices in 1973 and 1974.
Those price increases pulled billions of dollars of purchasing power from American consumers and businesses and transferred it to oil-producing countries and others.
Ever since, administration analysts say, workers have been seeking pay increases and businesses seeking price increase to try to recapture buying power that is gone forever.
The administration wants to put in place a new anti-inflation program to put voluntary restraints on wage and price increases.
Yesterday's report found a few bright spots.
Besides the recent slowdown in food price increases, the rise of clothing prices and transportation costs has been more moderate than last year.
"Medical care - a problem sector for years - provides some relatively good news," the report said. "Increases in the costs of medical care have decelerated from an annual rate of 9.5 percent in 1976-77 to an annual rate of less than 8.5 percent this year."
But housing costs, which make up 40 percent of the average consumer's budget, "have risen at an annual rate near 11 percent this year - a sharp acceleration over the 6.5 percent average annual rate of increase in 1976-77."