Fed says Iran war boosts inflation ‘moderate to strong’

In its Beige Book survey of U.S. economic conditions, the Fed said, “Regions pointed to energy-related costs related to conflicts in the Middle East as the main driver of inflationary pressures, with spillover into transportation, packaging, groceries and fertilizers.”

The United States and Israel launched war against Iran on February 28, and Tehran’s retaliatory attacks hit Washington’s regional allies and virtually blocked the Strait of Hormuz, plunging the region into chaos.

Under normal circumstances, about a fifth of the world’s oil and gas supplies pass through the vital waterway, and the blockade has caused energy prices to soar and supply chains to be severely disrupted.

The Federal Reserve’s Beige Book provides a summary of national information gathered from interviews with key business contacts, economists and other sources in the U.S. central bank’s 12 regions.

Government data last month showed the Fed’s preferred inflation gauge rose in April to its highest year-over-year rate since 2023.

Wednesday’s report quoted business owners as saying prices were rising at a disproportionate pace with non-labor inputs, suggesting companies were pushing down profit margins to maintain revenue.

High-income households continue to show resilient demand, consistent with what economists call the “K-shaped economy,” in which wealthy households maintain or increase spending while hitting weaker households harder.

“Middle-income households were described as ‘making the most of every dollar before deciding to spend it,’ while lower-income consumers showed greater financial stress,” the report said.

The report shows an overall increase in credit card usage, a decrease in retail stores, and an increase in demand for daily necessities.

Overall economic activity increased slightly to moderately in 10 of the 12 Federal Reserve districts, with one district experiencing a slight decline and another showing no change.

Employment activity was little changed in 11 regions, with one experiencing a small increase.

“Manufacturing hiring is the strongest sector in several regions, supported by defense-related activity and growing data center demand,” the report said, in line with expectations for demand from war and an explosion in artificial intelligence technology.

“Most regions described a low-hiring, low-fire environment, with workers increasingly reluctant to change jobs due to economic uncertainty,” the Fed said.

Aha/Des

This article was generated from automated news agency feeds without modifications to the text.