Businesses reported prices increased at an above-average pace as the U.S. economy’s recovery further strengthened going into the summer, the Federal Reserve said in a report released Wednesday.
The Fed, in its latest Beige Book report that collects business anecdotes from around the country, cited business concerns about inflationary pressures lingering for a while. “While some contacts felt that pricing pressures were transitory, the majority expected further increases in input costs and selling prices in the coming months,” the report said.
It said supply-chain disruptions became more widespread for both labor and materials, and that businesses reported low inventories and delivery delays.
The Fed also said the economy overall grew at a brisk pace over the past two months. “The U.S. economy strengthened further from late May to early July, displaying moderate to robust growth,” the Fed said. The report said the improvement came as consumers spent more on tourism, travel and other services that were restricted earlier in the pandemic.
Employers throughout the country also saw varying job gains, with many noting difficulties in finding workers. Wages increased at a moderate pace and demand for low-skilled workers rose, suggesting workers have increased leverage in a tight labor market.
Still, businesses told the Fed they were experiencing a widespread worker shortage, coupled with workers quitting or leaving jobs at an above-average pace. A staffing agency in upstate New York told the Fed that it saw many jobs remain unfilled after they had been advertised “in part reflecting increased turnover and churn, as more workers have changed jobs.”
The economy would have had a much stronger rebound if it weren’t for looming supply, labor and price issues, said Sung Won Sohn, a professor of finance and economics at Loyola Marymount University in Los Angeles.
“This is starting to look like the beginning of a wage-price spiral,” Mr. Sohn said. “Wages are going up more rapidly, but that does not include all the costs businesses are incurring to attract labor. So labor costs are going up and prices are going up as well.”
Retail businesses in the Northeast told the Fed that they had a hard time finding workers, even after raising wages by $1 to $2 an hour.
Employers throughout the country also saw varying job gains, with many noting difficulties in finding workers. Wages increased at a moderate pace and demand for low-skilled workers rose, suggesting workers have increased leverage in a tight labor market.
Fed Chairman Jerome Powell, speaking separately at a congressional panel on Wednesday, said inflation will likely remain elevated for the next few months until it begins to taper off. This came a day after the Labor Department reported that inflation accelerated at the fastest pace in 13 years in June. Consumer prices across the board rose by 5.4% in June from the year before.
“Chairman Powell is too optimistic. The underlying message is that inflationary pressures are building and that is not going to go away conveniently after a few months,” Mr. Sohn said.
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Appeared in the July 15, 2021, print edition as ‘Businesses Expect Further Price Gains.’