A 5 percent increase in energy costs triggered largely by President Reagan's decontrol of oil prices sent the nation's inflation rate back into double digits last month, the first full month of the new administration.
Consumer prices of all kinds jumped 1 percent in February, equivalent to an annnual rate of more than 12 percent, the Bureau of Labor Statistics report yesterday. In January consumer prices went up only 0.7 percent.
White House economist Murray Weidendbaum told the congressional Joint Economic Committee the February figures were in line with administration expectations. More bad inflation news is likely in the mounths just ahead, he warned. But after that the general inflation rate will improve and, "barring further oil disruption or crop problems, that improving trend is expected to continue into 1982 and beyond," Weidenbaum said.
As prices shot up last month, the value of an hour's work was eroded by 0.4 percent, the Labor Department said in a separate report. An hour's work bought 1.7 percent less than it did a year earlier, the report showed.
Weidenbaum, chairman of the president's Council of Economic Advisers, told the JEC that gasoline prices rose an average of 8.4 cents a gallon last month, and Reagan's decision to lift oil price controls all at once -- they would have phased out in September anyway -- around for about 6 cents of this. Last month's gasoline prices rose 6.6 percent, bringing the cost of an average gallon to $1.35.
The energy price increase out-weight continuing moderation in food. Higher prices for all kinds of energy accounted for 60 percent of the overall price increase in February, the BLS said. Food prices were up only 0.3 percent after standing still in January. But economists believe that as energy prices moderate, food prices may speed up in coming months, go inflation generally may stay high.
Food prices in the Washington area jumped by 1.1 percent last month after dropping by 0.1 percent in January. [Details on Page D9.]
The administration is forecasting an average inflation rate of just over 11 percent this year, dropping to single digits next year. The January price increase of 9.1 percent at an annual rate was acknowledged at the time to be only a temporary letup.
Weidenbaum used the discussion of the inflation figures to push the president's economic program, and in particular to argue for the large tax cuts proposed by the administration. He told somewhat skeptical committee members that the across-the-board income tax rate cuts of 30 percent proposed over 3 1/2 years would help to reduce inflation.
But as the first public hearings on the tax proposals began in the House Ways and Means Committee yesterday, sources said that the tax plan is likely to be changed significantly. Citizens for Tax Justice, a coalition of public-interest and labor groups, and Americans for Democratic Action gave the committee figures showing that inflation and Social Security tax increases would wipe out the benefits of the president's tax plan for many middle-income and lower-income groups while leaving the better-off with substantial savings.
But while they and Lane Kirkland of the AFL-CIO were critical of the administration's proposals, the U.S Chamber of Commerce, the National Association of Realtors and other business groups argued in favor of the Reagan program.