Half of the 12 Federal Reserve districts saw robust or intensifying price pressures in recent weeks as higher energy prices permeated the local economies, according to a survey of the central bank’s regional contacts.

Businesses in many of the central bank’s districts also noted inflation from other commodities, tariffs and insurance, according to the Fed’s Beige Book released Wednesday.

“Firms reported elevated diesel prices and noted that fuel surcharges were passing on increased costs throughout the supply chain,” the report said.

The Beige Book, which is based on information collected through Oct. 5, is consistent with other signs that prices are picking up in multiple parts of the economy. The government’s consumer price index published earlier Wednesday showed overall inflation advanced in September at the fastest pace in five months, with various goods and services seeing costs increases.

Fed officials raised interest rates at their meeting last month for the first time since 2023 amid concern that inflation won’t be able to fully cool to the central bank’s 2% target without more pressure on the economy from higher rates. Policymakers meet again at the end of this month.

Investors upped their bets of another interest-rate hike at the Oct. 27-28 meeting following the hotter-than-expected inflation report, before reducing those odds later in the day. Most now see the Fed holding rates steady this month and raising them again at their final meeting of the year in December.

Most Fed districts in the Beige Book said their economies grew somewhat during the survey period, though there was little to no change in overall employment. Eleven districts reported at least some growth in wages, with several noting that inflation was spurring further pressure on pay.

Here’s a sample of comments from the businesses surveyed in the October Beige Book compiled by the Philadelphia Fed:

Boston: Many contacts cited energy and freight expenses as significant ongoing cost burdens, and recent tariffs on Canadian imports created new cost pressures for several manufacturers.

New York: A food manufacturer noted it had not seen such broad-based inflationary pressures since the pandemic. Contacts renewing health insurance plans reported steep premium increases alongside higher deductibles and co-pays. Firms did not expect pricing pressures to ease in the coming months.

Philadelphia: Contacts reported that manufacturing growth continues to be driven primarily by data centers, AI, and defense-related activity. However, more than two-thirds of the surveyed firms reported increased production in the third quarter, the highest share since the second quarter of 2022, suggesting growth may be broadening across the sector.

Cleveland: Two banking contacts said that automation and AI had reduced staffing needs by enhancing the productivity of certain roles.

Richmond: A regional grocery chain noted that with diesel prices rising thirty percent since last year, they now pay more to transport a head of lettuce from California than the cost of the lettuce itself.

Atlanta: Consumer spending expanded slightly, with strength in high-end retail offsetting flat or contracting demand in other value tiers.

Chicago: Contacts were generally pleased with the back-to-school season, noting especially good results in the return-to-college segment, which boosted sales of electronics and furniture. In contrast, grocery sales were down. Forecasts for holiday sales call for modest growth, similar to last year.

St. Louis: Across the District, contacts highlighted sharp increases in non-wage labor costs — especially health care — which many firms are struggling to sustain. Some employers have begun shifting premiums to workers, several nonprofits have reduced or eliminated employer-paid benefits, and one contact noted that some workers declined job offers due to high insurance costs, particularly at smaller firms.

Minneapolis: Contacts reported that higher input costs were compressing profit margins. A funeral home operator commented, “Health and general insurance costs are killing small businesses.”

Kansas City: Manufacturing companies have indicated that they increased average hours, added overtime options, and extended shifts because of the limited labor availability within the market. One manufacturer noted, “It is hard to expand the workforce when they leave faster than you can replace them.”

Dallas: Texas manufacturing activity accelerated further over the past couple of months, with a sharp pickup in production and demand. Recent strength spanned both durables and nondurable goods manufacturing, and it goes beyond AI or semiconductor-related growth. One machinery manufacturer noted that oil companies were spending money at a much higher rate than expected. Gulf Coast refinery and petrochemical activity remained elevated.

San Francisco: Contacts continued to describe economic conditions as bifurcated or K-shaped, with one contact observing that mounting financial pressures on lower-income families have spread to impact middle-income households. In Northern California, sales at luxury and specialty retailers outperformed those at large department stores, while a national value retailer reported attracting customers that typically shopped at more expensive competitors.

What Bloomberg Economics says...

“Two themes will stand out for the Federal Reserve in its latest Beige Book report. Higher energy prices and other input costs pose a near-term inflation risk as they pass through supply chains. And evidence is building that investment in AI and automation is boosting productivity, allowing some firms to expand output with fewer new headcount.”

—Eliza Winger, economist

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