Fed’s Beige Book Sees No Sign of High Bidenflation Fading

Inflationary pressures remain high and are expected to persist, according to business contacts surveyed in the Federal Reserve’s Beige Book.

“Inflationary pressures remained strong since the last report, with firms continuing to pass swiftly rising input costs through to customers,” the Fed said in its Beige Book survey released Wednesday. “Firms in most Districts expected inflationary pressures to continue over the coming months.”

The Beige Book is a compilation of anecdotal evidence on the economy collected from local businesses by officials at the 12 regional Federal Reserve banks. It is regarded as a leading indicator because it has influence over the Fed’s monetary policy decisions and reflects the views of businesses whose decisions influence the path of the economy.

The Beige Book said that businesses across the country, particularly those in manufacturing, noted steep increases in raw materials, transportation, and labor costs. Spikes in prices for energy, metals, and agricultural commodities were reported following the Russian invasion of Ukraine.

The COVID-19 lockdowns in China have worsened supply chain disruptions, according to the beige book.

For the most part, it appears as if businesses have succeeded in passing on higher costs to customers, which may foreshadow a worsening of official inflation figures in the months ahead. Some economists had been predicting that the March inflation figures released last week would mark the peak of U.S. inflation.

Some businesses, however, report that high prices were negatively impacting sales, phenomenon economists refer to as “demand destruction” from inflation.

The high level of inflation did not indicate a high level of economic growth, according to the report. This could elevate worries that the U.S. could be headed to a stagflationary era, where growth is below trend and inflation above trend.

“Economic activity expanded at a moderate pace since mid-February. Several Districts reported moderate employment gains despite hiring and retention challenges in the labor market,” the Beige Book said.

The Beige Book’s reports on regional developments show a remarkable consistency when it comes to inflation and downside risks to growth: both are high everywhere.

“Wages and output prices alike increased at a moderate pace, but some nonlabor input prices soared. The outlook remained optimistic, but several contacts perceived an increase in downside risks,” the report from the Boston Fed notes.

“Businesses continued to report substantial increases in selling prices, input prices, and wages. Overall, business contacts have become less optimistic about the near-term outlook,” the report says of conditions in the New York Fed’s region.

While most of the Fed’s 12 regional banks describe growth as “moderate” since February, the Kansas City Fed and Dallas Fed were an exception. The Kansas Fed described growth as occurring at a “robust pace.” The Dallas Fed said the local economy expanded at a “faster clip.”

“Prices increased rapidly and contacts reported changing prices much more frequently than is typical,” the Kansas City report said.