The larger than expected 14.49 percent increase in oil prices announced for the next 10 months by the major petroleum exporting nations will worsen the U.S. economic outlook somewhat next year, but the impact won't be catastrophic, government and private analysts said yesterday.
Although calculations are still preliminary, the economists say the increase, which is expected to boost retail gasoline prices by between 2.5 and 3 cents a gallon, will add about 0.2 percentage points to the 8 percent inflation rate predicted previously.
Moreover, all sides agree that unwelcome as the oil price increase may seem from the U.S. viewpoint, it will not significantly deepen the modest recession forecast by many private economists for mid- or late 1979.
However, the increase will almost certainly complicate President Carter's decision on whether to decontrol domestic petroleum prices when mandatory ceilings expire in the spring. Outside observers said yesterday that Carter may be politically unable to lift the controls, as the administration intends.
The White House officially took a hard line yesterday, charging that market conditions "do not warrant" the almost 14.5 percent increase, and warning that it "will impede programs to maintain worldwide economic recovery and to reduce inflation."
The administration also called on the oil exporting nations to reconsider the later phases of their four-stage price increase after Iran resumes full oil productions. Experts said the cut-back in Iranian production was a major factor in enlarging the oil price rise.
Energy Secretary James R. Schlesinger told interviewers on "Issues and Answers" (ABC, WJLA) yesterday that the oil price boosts would raise gasoline prices by about 4.5 cents a gallon and would add half a percentage point to price levels here.
However, sources said the gasoline estimate was calculated using world oil prices, and did not include a reduction for domestic oil sold under controlled prices. Moreover, Schlesinger's inflation figures do not take into account oil price increases already factored into 1979 forecast.
Most economic forecasters had been expecting the oil exporting nations to raise prices by between 5 and 10 percent next year.
Top adminstration officials were using the following estimates yesterday for the likely impact of the price increase on the U.S. economy (an informal survey of private economists showed they were regarded as realistic by both conservativec and liberals):
The almost 14.5 percent price increase will boost overall prices levels here by 0.4 percent next year, adding 0.2 percentage points to the 8 percent inflation rate analysts have been forecasting for 1979.
In addition, policymakers expect an extra 0.1 percentage point of inflation in 1980 resulting from a so-called "ripple effect" as the impact of next year's crude oil price increases spreads throughtout other sectors of the economy.
The overall impact on the economy's performance is expected to trim output by a modest $2 billion to $3 billion, possibly slowing overall growth by 0.1 percentage point. Economists had been predicting the economy would grow by 1.5 to 3 percent.
The increase in oil prices will raise the nation's import bill by $4 billion or more-adding $1.5 billion to $2 billion to the trade deficit that had been expected if oil prices had risen by the 5 percent or so originally expected.
The trade deficit has been improving steadily and had been expected to fall from a record $30 billion in 1978 to as low as $15 billion in 1979. Now the 1979 deficit is likely to end up at between $17 billion and $18 billion.
The oil price increase is not considered likely to cripple the administration's new wage-price guidelines program. However, several analysts surveyed conceded it could make the program more difficult to sell to business and labor.
A White House statement yesterday said "we regret the OPEC [Organization of Petroleum Exporting Countries] decision and hope that it will be reconsidered before the next steps take effect.
"Market conditions do not warrant a price increase of this magnitude, since the current tightness in the world oil market is a temporary situation that does not reflect underlying demand forces. This large a price hike will impede programs to maintain world economic recovery and to reduce inflation. Responsibility for the success of these programs is shared by the oil producing countries."
Apart from the size of the rise, policymakers were also disappointed by the fact that almost a third of it was concentrated at the start of next year, rather than being spread out evenly over the year.
Officials expressed hope yesterday that the oil exporting nations would "review" the price rise once Iron resumes full productions. However, they conceded that the outlook for full resumption in politically torn Iron was uncertain.
Separately, the administration disclosed that Treasury Secretary W. Michael Blumenthal will go to the Peoples' Republic of China this spring for talks on trade, investment and other economic issues. Blumenthal will be followed a few weeks later by Commerce Secretary Juanita M. Kreps.