A South Carolina lumber store recently boosted retail prices to cover its rising wholesale costs. A Virginia hardware store has tacked freight surcharges onto its goods. Hotels across the country have boosted their room rates, and many say they plan more increases.
These are among the growing number of U.S. businesses that have raised consumer prices since hurricanes Katrina and Rita barreled into the Gulf Coast, driving up businesses' costs for fuel, petrochemicals, building materials and shipping, the Federal Reserve reported yesterday.
The Fed's survey of regional economic conditions provides anecdotal evidence rather than measurements of price increases, and it offers no conclusions about broader inflation trends. But the details suggest that many people are paying higher prices not just for energy, but also for a variety of consumer goods.
The report "says inflation pressures are, in fact, building," said Diane Swonk, chief economist at Mesirow Financial Holdings Inc., a privately held investment firm.
That doesn't mean inflation is taking off. Overall, consumer inflation outside of food and energy remained tame in September, as rising prices for some items were nearly offset by falling prices for others, the Labor Department reported Friday. And the Fed survey also found that competition prevented many businesses from raising prices.
Meanwhile, most of the Fed's 12 regional banks indicated that economic growth had cooled since the hurricanes, which should restrain price increases.
But Fed officials are concerned that businesses expect the latest increase in energy costs to last a while and that consumers expect inflation to move higher. These attitudes make it more likely businesses will try to pass their costs on to consumers, and may make shoppers more willing to pay higher prices, which could fuel an upward inflationary spiral.
"It seems likely that only a small portion of the run-up of oil prices over the past year will be reversed," Fed board member Donald L. Kohn said in a speech yesterday. "In that environment, keeping inflation expectations anchored will be especially important for preventing the recent increases in energy prices from getting built into future inflation."
Fed officials plan to keep price increases under control by raising interest rates in coming months, which should also slow economic growth. The Fed has raised its benchmark short-term rate steadily for 16 months, to 3.75 percent. But it remains too low, Kohn said. "We are not yet at a point where we can stop and watch the economy evolve for a while."
The Fed survey is compiled eight times a year to provide the central bank's top policymaking committee with a feel for regional economic trends. The group has indicated it is likely to raise its benchmark rate to 4 percent at its next meeting, on Nov. 1.
The economy continued to expand in September and early October, the Fed survey concluded. But most of the Fed banks described the pace as moderate or gradual, and the Federal Reserve Bank of New York reported a slowdown.
Businesses all across the country said they paid much more for gasoline, jet fuel, diesel fuel, petrochemicals, plastics, steel, lumber, cement and transportation. But they varied in their ability to raise consumer prices, according to the report, which summarizes the businesses' comments without identifying them by name.
Airlines in many areas raised fares. Pharmacies charged more for their products in the Chicago Fed bank's district, which covers much of the Midwest. Trucking firms raised fuel surcharges in the Philadelphia District, the report said, and "expectations of further price increases are widespread."
But the San Francisco Fed said retail prices were stable in the West Coast district. And businesses had limited success raising prices in the Boston District.
Meanwhile, appliance makers in the Chicago District said they couldn't raise prices to cover higher freight costs. Retailers in Michigan were offering discounts. An automaker in the Midwest planned to offer new sales incentives.
And higher energy prices have slowed the economy by forcing some consumers to cut back on spending and commuting, the report indicated.
Many Fed banks reported disappointing retail sales in their regions, including a big fall in auto sales after a sizzling summer. South Dakota tourism was lower in September, probably because of higher gasoline prices, the report said. Florida officials worried that high gasoline prices could dissuade travelers from visiting.
In the Dallas District, high gasoline costs were "discouraging some workers from taking low-paying jobs with long commutes," the report said. And trucking firms said that some "customers are choosing to forgo shipments because prices are too high."