The war in Iran is complicating investment and hiring plans and creating new cost pressures for businesses, according to the Federal Reserve’s Beige Book released Wednesday.
Overall economic activity increased “at a slight to modest pace” in most Fed districts, with two — Boston and New York — reporting slight declines. Consumer spending held up, despite harsh winter weather in much of the country, and employment held steady, according to the research.
The Beige Book, published eight times a year, captures current economic conditions across the Fed’s 12 districts through interviews and surveys with businesses, economists, and market observers.
Energy prices, as expected, were up everywhere, driven by the spike in oil stemming from the Middle East conflict. That rise is also leading to “higher freight and shipping costs and higher prices for plastics, fertilizers, and other petroleum-based products,” the Fed reported.
While the rise in energy costs is relatively new, prices are also under pressure from a longer-running factor: tariffs. “Several Districts reported rising prices for metals due to tariffs, such as steel, copper, and aluminum,” the report says.
Read more: What Trump’s tariffs mean for the economy and your wallet
A dispatch from the New York Fed summed up the tricky climate: “Some businesses reported raising prices to offset the constellation of rising costs. Some contacts said they had difficulty making pricing decisions in response to changing tariffs. Contacts expected pricing pressures to continue in the coming months.”
In the Philadelphia district, companies noted that higher oil prices had increased costs to make goods, but expected the full impact on prices to be lagging. Some businesses noted that many cost increases from higher oil prices would be lagging because of previously negotiated short-term contracts and that they were bracing for higher material costs, especially for plastics, as those contracts come up for renegotiation. Multiple manufacturers and retailers reported that they increased prices to cover rising input costs and previously absorbed tariff-related costs. Some manufacturers implemented surcharges on oil-related inputs.
In Atlanta, most energy companies expect crude oil prices to remain elevated or continue to rise well into the summer, as production infrastructure in the Middle East has been destroyed and resulting inflationary pressures across the broader economy are anticipated.
Consumers could see higher prices too. In Dallas, retailers expressed concerns about high oil prices driving up shipping costs and slowing business. With limited ability to absorb higher costs, several retailers said they plan to pass on cost increases to customers if gasoline prices remain elevated.
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