A new report from the Federal Reserve finds that inflation is pushing prices higher at a strong pace in most of its regional districts around the country, driven by the surge in energy prices.
The Fed on Wednesday released its latest edition of the Beige Book, which summarizes economic conditions in each of the Fed’s 12 regional districts and is published eight times a year.
“Prices increased at a moderate to strong pace overall, with most Districts reporting higher inflation from the previous report,” the Fed’s national summary explained.
“Districts noted that energy-related costs tied to the conflict in the Middle East were the primary driver of inflationary pressures, with spillovers into shipping, packaging, groceries, and fertilizer,” it added, with the Cleveland Fed noting increased fuel surcharges.
HIGH ENERGY PRICES RISK KEEPING INFLATION ABOVE 2% TARGET, CONCERNING FED POLICYMAKERS
Input costs that are unrelated to labor were rising at a faster pace than selling prices, which contributed to “broader concerns about margin compression” among businesses.
“The ability to pass on higher costs remained mixed across sectors, particularly among consumer-facing firms. Consumer uncertainty and concerns about fuel prices impacting households were noted by several Districts,” the report said.
Despite the disruption of the energy market driving inflation and price increases for consumers, the report noted that producers remain leery of expanding output due to uncertainty.
KEVIN HASSETT SAYS INFLATION WILL DROP SHARPLY ONCE STRAIT OF HORMUZ REOPENS
“Energy activity increased in two of the markets, but Districts reported that the outlook remains highly uncertain leading producers to hold off on materially expanding activity,” the Beige Book explained.
Higher costs for fuel and fertilizer also contributed to agricultural conditions remaining flat or declining in most of the districts, as farms face cost pressures for key inputs and transportation.
Economic uncertainty is also weighing on expectations for growth around the country, as the report explained that “business outlooks for the next six months reported to have little change in anticipated growth, as elevated uncertainty and signs of weakening consumer spending weighed on sentiment.”
FED’S FAVORED INFLATION GAUGE REMAINED ELEVATED IN APRIL
Inflation has jumped this year amid the Iran war’s impact on energy flows from the Middle East, after it remained elevated and trended higher in 2025 as higher tariffs pushed prices higher.
The most recent data from the Bureau of Labor Statistics shows that the consumer price index (CPI) – a key inflation metric – was up 3.8% from a year ago in April. That figure is well above the Fed’s long-term goal of 2% inflation and represents a notable increase from the 3.3% annual CPI reading in March, which itself was significantly higher than the 2.4% year-over-year inflation recorded in February.
The persistent inflation has dimmed the market’s outlook for interest rate cuts this year, with the CME FedWatch tool showing a higher probability for rate hikes before the end of this year than cuts.
As of Wednesday afternoon, the tool shows a 40.9% chance that the Fed’s benchmark rate remains at its current range of 3.5% to 3.75% through the central bank’s December, with a 41.7% chance of a 25 basis point rate hike by that time.
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