Fed’s Beige Book points to inflation

By Robin Harding in Washington

Published: March 2 2011 20:24 | Last updated: March 2 2011 20:24

There are early signs that businesses can pass cost increases on to their customers, according to the Federal Reserve’s latest survey of its business contacts.

“Manufacturers in a number of Districts reported having greater ability to pass through higher input costs to customers,” the Fed said in its Beige Book survey, published on Wednesday.

If businesses can pass on higher costs it will increase the chance that the surge in oil prices turns into broader inflation. The Beige Book reports are another sign that inflation may have passed its trough.

However, the Federal Reserve does not rely on anecdotal reports, and will want to see hard data showing that companies are able to raise prices. The core consumer price index rose by only 1 per cent in January.

In the Philadelphia district, “output price increases are becoming more widespread throughout the manufacturing sectors”. In Richmond, “while most sellers were not passing through cost increases yet, many expected to begin raising prices later this year”.

But there were also downward pressures on inflation. “Wage pressures remained minimal across all Districts,” according to the Beige Book.

All 12 Federal Reserve districts said that their economies expanded in January and early February with only Chicago reporting a slower pace of growth.

It is the second consecutive report in which every part of the country has reported expansion and adds to evidence that the recovery has become more robust.

Retail sales rose in every district except Richmond and Atlanta. Tourism picked up in several districts, and every district except for St Louis “experienced solid growth in manufacturing production”.

Several districts said that January’s snowstorms had held back activity, with Dallas reporting “stressed crops and ranching conditions”, and Atlanta retailers saying that “adverse weather had affected the positive sales trend”.