Beckner: Beige Book Suggests Inflationary Straws In The Wind
18 April 2018
By Steven K. Beckner
The Federal Reserve is still waiting for the price index for personal consumption expenditures (PCE), its preferred inflation gauge, to hit its 2% target, but there are other signs wage-price pressures may be building, the latest being findings of the Fed's new survey of conditions in its 12 districts.
The "beige book," prepared for the May 1-2 Federal Open Market Committee meeting, suggests "tight" labor markets are causing worker scarcities and wage concessions. "Businesses were responding to labor shortages in a variety of ways, from raising pay to enhancing training to increasing their use of overtime and/or automation, among other strategies," the Dallas Federal Reserve Bank said in its summary.
"Upward wage pressures persisted but generally did not escalate," the report continued more reassuringly. "Most Districts reported wage growth as only modest."
But the April survey reinforces the March one, which found that "in many Districts, wage growth picked up to a moderate pace. Most Districts saw employers raise wages and expand benefit packages in response to tight labor market conditions."
Meanwhile, "prices increased across all Districts" through April 9. Though price hikes were "generally ... moderate," there were "widespread reports that steel prices rose, sometimes dramatically, due to the new tariff" and "prices for building materials continued to rise briskly..." Transportation costs also generally rose, "with contacts citing higher fuel prices and shortages of truck drivers as the primary causes."
The Fed received "scattered reports of companies successfully passing through price increases to customers in manufacturing, information technology, transportation, and construction. Businesses generally anticipate further price increases in the months ahead, particularly for steel and building materials."
These gleanings are unlikely to excite hawkish FOMC action soon. They won't convince officials like Chicago Fed President Charles Evans, who observed Tuesday that "just as rising inflation seems less likely while inflation expectations are low, escalating inflation is also difficult to imagine in the absence of commensurate wage gains." After painting "a rosy picture of labor markets," he added, "strong wage growth has been a missing piece. Over the past year, average hourly earnings have risen 2.7 percent. This is nearly a full percentage point lower than the wage gains we saw before the financial crisis."
But others are less complacent, and more such anecdotal straws in the wind, if validated by data, could convince the FOMC majority that there is an inflation upcreep they need to stay ahead of.