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After years of having little-or-no pricing power, businesses were able to pass along price gains to customers in December, according to the latest Federal Reserve report on current economic conditions known as the Beige Book.
“Contacts in most of the Fed’s 12 districts reported solid growth in prices charged to customers,” the report said.
Some regions reported that the price gains in their regions were not as high as they were a few months ago.
In the wake of the 2008 financial crisis, it became a tenant of the economy that businesses had little ability to pass along price gains to customers. Fed officials often said pricing power had been limited by globalization and technology – including the fact that customers could shop on-line for the best prices.
But, like it has done in so many other spheres of life, the coronavirus pandemic appears to have turned this trend on its head.
The Fed survey found that wholesale and materials prices were contributing to pricing pressures across a wide range of industries, including the service sector. Economists say service-sector inflation is a particular red flag for central bankers because the U.S. economy is dominated by services and also because price gains in that sector seem to be more intractable.
The inflation picture in the Fed report fits squarely with the government’s consumer price inflation data released earlier Wednesday that showed prices are rising at the fastest pace in 40 years.
Read: Consumer prices soar in December
The Fed survey found that activity expanded only at a “modest” pace in December as the economy is being hamstrung by supply-chain disruptions and labor shortages.
There was a “sudden pullback” in travel and leisure spending given the rapid spread of the omicron COVID-19 variant.
Several Fed districts reported that expectations for growth over the next several months “cooled somewhat” during the last few weeks.
Stocks
DJIA,
SPX,
were higher on Wednesday while the yield on the 10-year Treasury note
TMUBMUSD10Y,
slipped to 1.728%. Analysts said investors don’t expect omicron’s negative impact on growth to be long-lasting.
