Signs of Higher U.S. Inflation Creep Into Regional Fed Surveys

(Bloomberg) -- Prices of materials used in U.S. manufacturing have been mounting for many months. Now signs are emerging in Texas and along the East Coast that more producers are having greater success passing on some of those costs to customers.

Recent regional Federal Reserve surveys also indicate that not only is the build-up in price pressures extending to service providers that make up the biggest part of the economy, but wages are also firming as the tight job market places a premium on skilled workers.

The reports from various Fed district banks show how a robust economy, the Trump administration’s tariffs and surging freight costs are all combining to keep inflation percolating. The longer the following price and wage figures linger at multiyear highs, the greater the risk that consumers will be paying more.

In Texas, a gauge of costs paid by factories for materials climbed in June to a seven-year high, while a measure of what producers receive for their wares advanced to the highest level in almost a decade, the Dallas Fed reported on Monday. The figures show more manufacturers are paying higher input prices and getting more for the final product.

Signs of Higher U.S. Inflation Creep Into Regional Fed Surveys

Wage growth is also flexing its muscle as the economy powers ahead and companies continue to tap a shrinking labor pool of skilled and experienced workers. Labor costs are the biggest share of companies’ expenses and further pay growth could underpin inflation. In Texas, more producers and service providers are boosting pay and expect to continue to do so.

Signs of Higher U.S. Inflation Creep Into Regional Fed Surveys

Similar results were reflected in a Philadelphia Fed report on manufacturing. While Texas factories were less upbeat about their prospects for pricing in the next six months, Philadelphia-area producers were much more confident. An index of expected prices received jumped to an almost three-decade high.

The pricing-outlook measure indicates “factories will have more pricing power,” according to Niraj Shah and Carl Riccadonna of Bloomberg Economics. “While that will need monitoring, we still expect inflation pressures to rise this year in a controlled fashion.”

Signs of Higher U.S. Inflation Creep Into Regional Fed Surveys

Price pressures in eastern Pennsylvania and surrounding areas aren’t just confined to manufacturers. The Philadelphia Fed’s results for non-manufacturing industries, issued Tuesday, showed more firms are paying up for merchandise and raising prices for their goods and services. What’s more, the greatest share in records going back seven years said wages were rising.

Signs of Higher U.S. Inflation Creep Into Regional Fed Surveys

Moving down the East Coast, manufacturers from in the mid-Atlantic are also experiencing cost pressures, both for materials and labor. Factories’ average cost for production inputs and the price they charge for their final product are rising at the fastest pace since 2012, Richmond Fed data released on Tuesday showed. The region spans from Maryland to South Carolina.

Signs of Higher U.S. Inflation Creep Into Regional Fed Surveys

The Richmond Fed’s latest figures also mirrored what is happening in the broader labor market. More firms are reporting wage increases as the availability of skilled workers remains very lean.

Signs of Higher U.S. Inflation Creep Into Regional Fed Surveys

The question now for Fed policy makers and financial markets is to what extent, or whether, these more-elevated costs of doing business are passed on in the form of higher goods and services prices for American consumers.

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