The major factor causing inflation to stifle US economy

Supply chain issues are hurting hopes of a swift economic recovery. Photo / Getty Images

The Federal Reserve's latest nationwide business survey found that the economy strengthened further in late May and early June, despite supply-chain bottlenecks that led to price hikes.

The Fed said Wednesday that seven of its 12 regional bank districts reported strong price increases with some businesses expressing concerns that the supply chain disruptions would push prices even higher.

The US economy is rebounding strongly from the recession brought on by the coronavirus pandemic. That has led to a surge in people seeking everything from new cars to hotel stays, leaving businesses struggling to find enough components and employees to meet the demand.

"While some contacts felt that pricing pressures were transitory, the majority expected further increases in input costs and selling prices in the coming months," the Fed said in its latest beige book report, based on interviews with its business contacts around the country.

The report said that business sectors dealing with transportation, travel and tourism, and manufacturing all experienced above-average economic growth in the period.

But the survey also found that the supply-chain disruptions led to shortages of materials and labour, along with low inventories and constrained sales of many consumer goods.

"A report like this would have roiled markets several decades ago," said Robert Brusca, an economist with FAO Economics. "There are lots of shortages and prices rising and input costs going up and labour in short supply."

The Fed survey was based on interviews by the Fed's 12 regional banks with business contacts in their regions. It will form the basis for discussions on the economy when central bank officials next meet on July 27-28.

The expectation is that after that meeting the central bank will keep interest unchanged near a record low of zero per cent as a way to bolster the economy as it rebounds from last year's pandemic recession.

The survey found that three-fourths of the Fed's districts reported either slight or modest job gains with demand strongest for low-skilled workers, with labour shortages often cited as the reason that firms could not fill their vacancies.

"All districts noted an increased use of non-wage cash incentives to attract and retain workers," the Fed said with many businesses expecting the difficulty in finding workers to extend into the early fall.

Federal Reserve Chairman Jerome Powell delivered the Fed's twice-a-year monetary report to Congress on Wednesday. In his testimony, Powell suggested that inflation, which has been surging as the economy strengthens, will remain elevated in the coming months but will then moderate.

Powell was upbeat in his views on the economy, saying growth is on track "to post its fastest rate of increase in decades" but that there was still a long way to go before the labour market is fully healed.

- Associated Press