US Businesses Managing Inflation by Passing on Costs to Consumers, Fed Beige Book Says

WASHINGTON (Sputnik) - US businesses are managing the worst inflation pressure in 40 years by passing costs on to consumers, the Federal Reserve said on Wednesday in its latest Beige Book report which covers business activity in 12 business districts monitored by the central bank.

Consumers were also partially insulated from price pressures, thanks to higher wages and demand for workers, which remained well above labor supply, the report said.

"Retailers reported strong demand and were largely able to pass along rising prices to customers," said the Beige Book report, which contained information up to April 11. "Employment rose moderately but demand for workers continued to exceed supply, leading to further wage increases to recruit and retain staff."

After contracting 3.5% in 2020 from disruptions forced by the coronavirus pandemic, the US economy expanded by 5.7% last year, growing at its fastest pace since 1982.

But inflation grew even faster. The Personal Consumption Expenditure Index, a US inflation indicator closely followed by the Fed, expanded 5.8% in the year to December and 6.4% in the 12 months to February, both also at their fastest in four decades.

The Federal Reserve’s tolerance for inflation is a mere 2% per year, a level it considers as neutral towards economic growth. The central bank is planning a total of seven rate hikes this year alone to bring inflation back to its desired level.

The Beige Book report said fuel and transportation continued to rise between late March and early April, adding to inflation.

But it also noted that most sectors of US business were vibrant in April, though hampered by continuous supply chain disruptions caused by the pandemic.

"Auto sales remained constrained by low inventory levels of new vehicles," the report said. "Leisure travel and tourism was strong while business travel started to pick back up but remained well below pre-pandemic levels. Demand for homes remained strong and low inventory levels persisted. Commercial real estate activity was robust, particularly in the industrial and multifamily sectors. Bank lending was also strong, largely driven by commercial activity. Non-financial services firms saw moderate growth as the decline in COVID cases and easing of restrictions helped improve business conditions."

While employment rose moderately, demand for workers continued to exceed supply, leading to further wage increases to recruit and retain staff, the report said.