Treasury Secretary W. Michael Blumenthal conceded yesterday that the administration "screwed up" in forecasting a 7.4 percent inflation rate for 1979 and predicted that prices will rise at least 8.5 percent this year-and possibly higher.

Blumenthal told a Senate subcommittee that "more bad price news" is likely for several months because sharply rising material and labor costs will put businesses under pressure to boost prices to protect their profit margins.

"I would be surprised if we're below 8.5 percent" on inflation this year, the Secretary said, "I hope it's not too far above that.I think it is obviously not now possible to hit the kind of target we predicted. That's out."

Blumenthal also said the administration now "clearly" sees "signs of a slowdown" in the economy, even thought top officials were worried about overhearing only a few weeks ago. He predicted that prices would moderate sometime this fall.

Blumenthal's comments marked the first time the administration has publicly raised its January inflation forecast. Private economists predicted an 8 percent inflation rate in January but since have boosted that to 9 percent.

It was not entirely clear what impact the revision Blumenthal announced would have on Carter's economic policies, except perhaps to change a few of his budget estimates.

A spokesman for the Council on Wage and Price Stability said his agency had no plans to alter its wage-price guidelines to conform with the revised forecast. The White House is asking that pay hikes be held to 7 percent.

The administration has been plagued by an unexpected sharp rate of inflation so far this year. Wholesale prices have soared since January at a pace that, if continued, would mean an annual rate of 13.1 ppercent. Retail prices have rsed at about the same pace.

The latest figures on wholesale prices, published last week, indicated inflation was speeding up in categories other than food-a development analysts say points to a continued high inflation rate for the bulk of this year.

Presient Carte said in an April 10 press conference that the administration has been "disppointed" by recent price statistics, but declared: "I believe that we will see a turn very shortly in the inflationaary trend downward . . . ."

Blumenthal said yesterday "the president is right when he says we can look forward to bad inflation figures for several more months." Later, he said inflation woun't ease "in the next month or so. It will be several months. . . ."

Blumenthal's confession that the administration "screwed up" came in response to a question by Sen. Harrison Schmitt (R.N.M.). "Yes," the secretary said, "but we screwed up in good company." He said other economic also were also were over-optimistic.

The secretary also made these points.

He expressed apprehension that the public might conclude that inflation cannot be slowed, bringing on a "buy-at-any-price" psychology that itself could fuel another round of inflation.

He denied that business profits were contributing to the recent surge of inflation. "I don't believe excess profits are a significant factor fueling inflation," Blumenthal said. "It is not clear at all that there [are] excess [profits]."

He predicted the economy would rebound smartly this quarter from the slowdown recorded in the January. March period, with a growth rate ranging between 3 and 4 percent, compared to an 0.7 percent pace in the first quarter.

He exonerated workers on most of the recent increase in unit labor cost. Blumenthal said the jump stems mostly from last January's increases in Social Security taxes and the minimum wage, not from wage boost.

He again declared flatly that for all the recent speedup in inflation, the administration still has "no intention whatsoever to have any kind of price controls," as some businessmen apparently still fear.

Blumenthal described the beginning slowdown in the economy as "welcome." Only a few weeks ago, the secretary was fearful that the economy was overheating, and was urging another increase in interest rates.

The Federal Reserve Board nudged interest rates up slightly two weeks ago, but the boost was viewed as a technical adjustment and not necessarily a policy shift. Most analysts still are puzzled about the economic outlook. CAPTION: Picture, Treasury Secretary W. Michael Blumenthal, right, with Sen. Lawion Chiles (D-Fla.) before subcommittee hearing. AP