Inflation scare dents US economy

WASHINGTON: The US economy flashed signs of slower growth heading into the summer but that did not help alleviate inflation concerns. Stung by rising costs for energy and other materials, some businesses felt inclined to boost prices.

That was the picture emerging from a Federal Reserve survey, released on Wednesday, of the business climate around the US. Although overall economic activity did expand from the middle of April to early June,“ there were some signs of deceleration, the survey said.

In four of the 12 Fed districts surveyed — Atlanta, Kansas City, Missouri; Richmond, Virginia; and San Francisco — economic activity moderated. In Boston, Chicago, Cleveland, Dallas, Minneapolis, New York and St Louis, economic growth was about the same as in the Fed’s last report, from April. Only the Philadelphia district reported
better conditions.

Consumers did ring up sales, but also showed signs of caution. Some Fed districts reported retail sales were slowing or weaker than anticipated at discount stores or to lower-income customers, who have especially felt the pinch at the gas pump.

“High gasoline prices were cited by a few districts as changing purchasing patterns or clouding the outlook for sales,” the survey said. “A couple of districts also said that rising interest rates were a concern,” the survey added.

The Fed’s survey was taken after the latest jump in energy prices. Oil prices reached a record of $75.17 in late April. They have retreated, closing at $69.14 a barrel on Wednesday. Gasoline prices, meanwhile, are above $3 a gallon in many areas.

The survey was taken after the Fed raised interest rates to a five-year high to help fend off inflation. The central bank’s action on May 10 marked the 16th rate increase since June ‘04.

The Fed’s snapshot is based on information supplied by 12 regional Federal Reserve banks and collected before June 5. On the inflation front, the survey said, “Concerns about high or rising costs were expressed by business contacts across much of the country.” In some Fed districts this led to higher selling prices for manufacturers.

Higher prices were reported for items, including fuels, metals, petroleum-based products and many building materials, such as concrete, steel, cooper and zinc, the survey said. Some firms in the Philadelphia district said suppliers were including automatic price escalation in contracts to cover future increases in the cost of materials.

A number of districts reported increases in fuel surcharges. Although businesses were more likely to pass along some of their increased costs to each other in the form of higher prices, they were a bit more restrained.