Beckner: Beige Book Highlights Inflationary Straws in the Wind

31 May, 2018

By Steven K. Beckner Unmistakable, albeit anecdotal, signs of intensifying wage-price pressures are on display in the Fed's "beige book" survey of conditions in its 12 districts through May 21. The findings, summarized by the Cleveland Federal Reserve Bank, don't paint an alarming picture, but do suggest some pick-up of inflation compared to the April 18 beige book. With "tight" labor markets causing "difficulty filling positions across skill levels," the latest survey found "many firms responded to talent shortages by increasing wages as well as the generosity of their compensation packages." Wage increases "remained modest" in the aggregate. The prior beige book sounded more sanguine: "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. Upward wage pressures persisted but generally did not escalate; most Districts reported wage growth as only modest." While "prices rose moderately in most Districts," the latest beige book points to increased input costs and greater pass-throughs. "A few Districts noted that these reports of rising materials costs were becoming more common across contacts," the survey found. "Input cost increases, along with labor shortages in some sectors and strengthening demand, put upward pressure on prices in the transportation, construction, and manufacturing sectors." "Some Districts also noted that their retail contacts were more able to pass along price increases to their customers than in the recent past," the latest beige book added. By contrast, the April survey found only "scattered reports of companies successfully passing through price increases to customers in manufacturing, information technology, transportation, and construction."