Manufacturing is experiencing the greatest price pressures. Consumer-facing companies, like retailers, are staring down customers who are increasingly unwilling to pay higher prices. These mounting pressures have yet to drag on the stock market. For example, even after Caterpillar (CAT) changed its guidance to incorporate higher estimated tariff costs, the stock pulled back slightly for a very brief period before rallying sharply.

Of course, the market’s general lack of concern for tariff costs, excluding this month’s sharp but brief churn from reigniting US vs China trade tensions, makes the Fed’s job ahead much easier. The market promises to focus on the positives to come from easing monetary policy and to ignore any inflationary impacts.

Here are the price-related highlights from each region that most caught my attention…

Boston

The inflation picture continues to gradually deteriorate in Boston. Boston produced benign inflation commentary in the July report, but several points of inflationary pressure showed up in the August report. Now, “most contacts expected to face at least modest further cost pressures moving forward, and some were concerned about a possible acceleration of prices in 2026.”

New York

This district delivered some of the sharpest inflationary commentary in the July report. In the August Beige Book, the Fed summarized businesses as expecting “a pickup in the pace of price growth in the months ahead” and now for October these firms are warning they “expect significant pricing pressures to persist.” The range of pricing narratives in New York remain the most colorful including one retailer that adjusted prices according to an estimate of demand elasticity for each of its products in an effort to accommodate cost pressures from tariffs.

Philadelphia

Like New York, Philadelphia provided a colorful description of broad-based pricing pressures. While price growth “moderated”, the Fed described some concerning practices in the district including “multiple contacts noted that some suppliers were citing tariffs when raising prices, even if their goods were not subject to increased levies.” This behavior broadens the inflationary impact of tariffs. Weakening economic conditions are pressuring the margins of consumer-facing businesses who are unable to pass along all the increases in input costs with many even “increasing discounts to sustain demand.”

Cleveland

Just as described in the prior Beige book “in general, costs were expected to grow at a strong pace in the coming months.” In recent weeks, “nonlabor input costs rose at a robust pace” with tariffs frequently blamed for the pricing pressures. In a familiar refrain, some retailers chose to discount prices. Some selectively rose prices. Some manufacturers chose market share over profits by holding prices steady despite cost pressures.

Richmond

Richmond returned to sparse commentary on inflation. The Fed reported that “on balance, year-over-year price growth remained moderate this cycle.” The contact-specific reports ranged from little to no price pressures. Some businesses have yet to pass along tariff-related costs.

Atlanta

Higher inflationary pressures are apparently just getting started in Atlanta. According to the Fed, “contacts warned that price pass-through resulting from tariffs has just begun and expect to see prices rise into 2026.” While firms currently use a wide variety of tactics to cope with cost pressures, particularly from tariffs, the “internal cost pressures continued to mount, and firms noted there was little room to cut costs further.”

Chicago

The inflation to come in Chicago is on the retailing side. Retailers are still trying to sit on price increases: “retailers were trying to hold off passing tariff-related cost increases on to consumers for as long as possible, though several smaller retailers reported already raising prices because of tariffs.”

St. Louis

As in Philadelphia, St. Louis reported an incidence of a business opportunistically increases prices where a “suppliers’ costs had increased despite having a primarily domestic supply chain.” As in other regions, St. Louis also called out insurance premiums and utilities as adding to the price pressure from tariffs.

Minneapolis

Minneapolis reported a very specific breakdown of pricing pressures: “One-fifth of District firms increased the prices they charged to customers in September from a month earlier, and a similar share anticipated increasing their prices in the month ahead. More than half of respondents reported increased input prices over the previous month.” Overall, prices increased “moderately” with more pricing pressure from input prices.

Kansas City

According to Kansas City, inflation next year could be higher than this year: “The anticipated acceleration of price growth was expected to be somewhat persistent; most firms reported they anticipate raising selling prices in 2026 at a slightly faster rate than this year.” Manufacturing firms are feeling the highest pressure as input prices push higher.

Dallas

Just as in other regions, manufacturers in Dallas were the hardest hit by input cost pressures. However, going forward, it is service firms that expect higher inflation while manufacturers expect “steady” price growth.

San Francisco

With “somewhat” weakening economic conditions, restaurants and insurance companies faced customer pushback on higher prices. Overall, prices “rose modestly” with retailers passing on increased input cost “mostly in the mid to high-end markets.”

Hedging the Inflation Call

As gold continues to soar, I recognize that the precious metal is serving as much more than a dour inflation hedge (the technicals in the chart below actually suggest a topping process may be unfolding. The recent decline in bond yields (rally in prices) reminds me that the bond market ranks inflation toward the bottom of its worries. Accordingly, I cannot adamantly plant a flag on the field of inflation (for example, I stopped fading the iShares 20+ Treasury Bond ETF). Still, I consider inflation to hold plenty of potential to surprise to the upside given a rate cut cycle has restarted with plenty of inflationary pressures growing, not diminishing, in the economy. The Beige Book is a key tool for sniffing out these pressures.

Be careful out there!

Full disclosure: no positions

The post October Beige Book Includes Signs of Higher Price Pressures in 2026 appeared first on Inflation Watch.

Each Federal Reserve district or region faces slightly different economic issues and opportunities based on the qualitative evidence presented in the Beige Book. Still, each provides an important piece of the puzzle for the direction of inflation. The Fed Presidents take the observations from their districts into the FOMC meetings. Given the concerning signals about inflation in these observations, I strongly suspect the September meeting will produce lively debate and perhaps more dissenting votes than the last decision on monetary policy.

Here are the price-related highlights from each region that most caught my attention…

Boston

Boston produced benign inflation commentary a month ago. This time around, the district noted tariff-driven reasons for increased prices for clothing and manufacturing. However, in signs of capped pricing power, home furnishings retailers noted their manufacturers absorbed more tariff costs than expected. Domestic manufacturers did not pass on the full costs of tariffs for fear of losing business. The prognosis for future inflation is not clear: “A few contacts expected further cost and price increases in the coming months, but most did not comment on the outlook for prices”.

New York

This district delivered some of the sharpest inflationary commentary a month ago. Inflationary pressures remain strong in New York: “Pricing pressures continued to rise during the reporting period, driven mostly by tariff-related costs. Selling prices rose moderately, marking some acceleration since the previous period. Input prices continued to rise at a strong pace.” Not only are businesses planning to pass on increased costs from tariffs, but also they increasingly expect “a pickup in the pace of price growth in the months ahead”.

Philadelphia

Inflation expectations are up significantly year-over-year in the Philadelphia district. Most concerning is the impact of inflation on lower-income households whose incomes are increasingly falling behind rising prices.

Cleveland

Cleveland continues to get hit hard by cost pressures: “nonlabor input costs continued to rise at a robust pace in recent weeks…Contacts generally expected costs to grow at a strong pace in the coming months”. Narratives of tariff-related impacts ran throughout the descriptions of cost increases except for the IT-related pricing pressures. Plans for passing along increased prices to customers ranged from 100%, to slow increases, to a wait-and-see approach given tariff uncertainties. Pricing power actually decreased for some contacts with metal manufacturers even cutting prices to remain competitive. Reduced pricing power and increasing input costs will translate into lower margins and slower hiring.

Richmond

Richmond previously had little to say about prices. For the September Beige Book, Richmond reported significantly higher price increases for non-manufacturers than for manufacturers. Tariff-related impacts had an outsized influence on pricing pressures: “the firms that reported the largest increases in year-over-year prices received generally had higher exposure to tariffs”.

Atlanta

Small businesses are particularly suffering from inflationary pressures in Atlanta. They must have minimal pricing power given they are cost-cutting and changing product mix to cope with higher costs. Inflationary pressures, including tariff-related impacts, are expected to persist: “many contacts expect to realize inflationary impacts from tariffs through the second half of this year and into 2026, and even those with little or no tariff pressure anticipate increasing prices to offset other costs”. The cost and price pressures unrelated to tariffs present a major wildcard for monetary policy since there is little rational (yet?) to simply look past these pressures.

Chicago

Businesses in Chicago experienced and expect the same moderate pace of price increases. Interestingly, some retailers are holding off on passing along tariff-related costs until early next year. The timing of price hikes presents yet one more wildcard for monetary policy.

St. Louis

Business in St. Louis reported increasing inflation (a faster pace of price increases). Businesses reported a mix of fears that customers will soon no longer accept or afford price increases. Some are conducting price experiments to test customer’s price sensitivity. On the other hand, business reported price increases from tariff impacts AND “market opportunities to improve profit margins”.

Minneapolis

Inflation no longer sounds benign in Minneapolis. Half of survey respondents experienced price increases from the previous month and a quarter reported charging higher prices to their customers. As In Boston, competition in home furnishings will tightly cap price increases in that sector.

Kansas City

Businesses in Kansas City continue to experience pressure on profit margins from increased costs and the inability to pass on costs to customers. Some increases in input costs have become sticky as prices failed to respond to the removal of select tariffs.

Dallas

In June, 12-month expectations for price increases subsided a bit. In August, half of survey respondents reported negative impacts from tariffs including price increases. Plans to pass through these costs were “mixed”.

San Francisco

Once again, higher prices broadly hit the San Francisco district. However, lower demand in construction drove prices lower in that sector. Tariffs drove higher prices of “most inputs”. While many costs were passed along to customers, “in some instances, such as in food services and accommodations, weaker consumer demand led companies to absorb the higher costs”.

Inflation Will Stay Resilient

Just like a month ago when I used the Beige Book to support the case for a bottoming in core CPI, the latest Beige Book reinforces that bottom with higher inflation to come in the short-term. With the Federal Reserve on track to push through rate cuts anyway, gold’s breakout (see below) makes plenty of sense. Stagflation remains in the realm of potential outcomes given the various reports of slow and slowing economic activity alongside pricing pressures.

On the other hand, the current rally in the bod market suggests market participants are much more worried about slowing growth than inflation. I continue to manage my risks on the inflationary side of the ledger and accumulated Oct $87 puts on iShares 20+ Year Treasury Bond ETF (TLT) ahead of the CPI report for August….despite the bullish breakout for TLT.

Be careful out there!

Full disclosure: long GLD call spread, long TLT puts

The post August Beige Book Points Toward Higher Inflation to Come appeared first on Inflation Watch.

Each Fed region told slightly different stories about their respective inflationary pressures. A few regions are even enjoying some type of price stability for now. Still, the anecdotal evidence on the whole supports the notion that tariffs cause prices to rise and the price impacts can cascade in uncertain ways.

Boston

Boston produced benign inflation commentary. Prices may be stabilizing. According to the Boston observers: “Most contacts expected to hold their own prices steady for the rest of the year, as some perceived strong consumer resistance to further price increases. Tariffs were expected to drive seafood prices higher going forward, but risks of rising inflation were mentioned less frequently than in the previous report.”

New York

The commentary from New York was the exact opposite of Boston. Perhaps reflecting a higher rate of international commerce in the New York region, this region delivered some of the sharpest inflationary commentary: “the pace of input price increases remained steep as tariff-related cost increases were widespread. Many businesses reported continuing to pass on some or all tariff cost increases to their customers.” Tariffs drove up the costs of steel inputs and auto parts. While businesses indicated there are limits to their ability to pass on prices – “businesses expected substantial increases in input prices in the months ahead, but more moderate increases in selling prices” – one retailer reported a creative solution by raising prices on products with inelastic demand. This pricing strategy could gain popularity as tariffs push higher prices across the economy and businesses scramble to accommodate without crushing demand.

Philadelphia

This region reported some pricing pressures in the forms of discounts from the retail, tourism, and residential construction sectors. The pricing pressures facing builders have slowly increased this year. One firm even received price relief on insurance for the first time in a few years. While tariff-related pricing pressures have been lower than expected so far, businesses expect larger tariff impacts in coming months.

Cleveland

Perhaps because of heavy industries with a dependence on highly tariffed inputs, Cleveland seems to be getting hit hard by cost pressures: “contacts’ reports indicated that nonlabor input costs continued to rise at a robust pace in recent weeks and that the cost stabilization seen during 2024 had dissipated.” The strong pace of price increases in imported, tariff-impacted materials and tariff-impacted retailers leads contacts to generally expect “costs to grow at a strong pace in the coming months.” The banking, professional, and business services sectors have even experienced higher costs for technology, including AI and data security. (Cleveland was the only region to report such higher costs, but I doubt they are or will be the only one hit given the broad need for this technology). Firms in Cleveland are raising prices to respond to tariffs, but they are somewhat constrained by price sensitivity in their marketplaces.

Richmond

Richmond had little to say about prices. The most notable comment came from a firm that has suffered increased costs throughout its business: “One manufacturer said that input costs were higher in recent months due in part to tariffs but also from rising regulatory, insurance, and labor costs, including wages and benefits.”

Atlanta

In Atlanta, businesses are trying every trick in the book to manage tariff-related risks and price pressures: sharing costs between suppliers and customers, changing supply chains, drawing down on pre-tariff inventories, pre-emptive price hikes, and wait-and-see. I expect this broad palette of strategies to unfold nationwide.

Chicago

Business in Chicago expected the same pace of inflation going forward as the “moderate” rate they saw from late May to June. Higher material costs were the highlight for manufacturers surveyed in the region.

St. Louis

Businesses surveyed in St. Louis described a mix of absorbing the increased costs of tariffs and passing along higher costs to customers.

Minneapolis

Beating Boston, Minneapolis had the most benign commentary on inflation. Businesses in Minneapolis actually reported a slower pace of inflation than the previous month. This region quantified its survey as follows:

• About a quarter of District firms increased the prices they charged to customers in June from a month earlier.
• About the same percentage anticipated increasing their prices in the month ahead.
• Slightly less than half of respondents reported increased input prices over the previous month.

Kansas City

Profit margins shrank in Kansas City as businesses were not able to pass on the full extent of increased input costs. Companies may have absorbed all they can at this point given “some firms reported they are planning broad-based price increases across product lines to maintain profitability.”

Dallas

Despite a range of reports of higher costs for input materials, “expectations for 12-month price growth eased slightly in June compared to March.”

San Francisco

Inflationary pressures remained the same from the June to the July Beige Book. The pressures are also broad-based: “Price increases were reported across a wide range of industries.”

Inflation Will Stay Resilient

On balance, the Beige Book confirms that, at best, inflation going forward will hang around current levels. Gone is the glide path downward that reassured the Fed about cutting rates. The June CPI report suggests that inflation has bottomed out. A nudge from tariffs could put in place a new uptrend as higher price levels settle out through the country.

The Fed is unlikely to hit its 2% inflation target anytime soon.

The Noise

While inflationary pressures build, pressures build on Chair Jerome Powell o resign or get fired. The drumbeat of acrimony now seems like a lot of noise. Like the tariff drama, trauma, and noise, the Powell versus Trump drama is mainly headline fodder until something happens. Wednesday’s (July 16) news was case in point. Headlines screamed Trump was ready to fire Powell, bonds fell, and then Trump refuted the rumor. The iShares 20+ Year Treasury Bond ETF (TLT) almost tested its low for the year before rebounding sharply.

I used the sharp dip to buy TLT $87 call options expiring in August. The trade bets on another relief rally following a sharp sell-off. I expect to return to fading rallies in due time.

Be careful out there!

Full disclosure: long TLT calls

The post July Beige Book Reinforces A Bottoming in CPI appeared first on Inflation Watch.

While it is far from clear how tariff-driven price hikes will eventually shake out, the Fed districts offered sufficient evidence of businesses who have price hikes waiting in the wings.

In Boston, a clothing retailer retagged products for sale this summer with higher prices than planned before tariffs.

In New York, manufacturers claimed they plan to pass along most or all of tariff-driven price increases. Moreover, “businesses continued to expect substantial increases in input prices in the months ahead.”

In Philadelphia, “more than two-thirds of the surveyed firms anticipated increased costs and expected their competitors to increase prices in as little as two months.” Yet, about half of Philadelphia respondents reported increased price sensitivity amongst its customers.

In Cleveland, businesses expect a “strong pace” of growth in costs”, particularly with nonlabor input costs rising “at a robust pace in recent weeks.”

Firms in Richmond expect prices to rise faster in the coming 6 months.

In Atlanta, some firms pushed through price increases despite softening demand, a troubling prospect of potential stagflation. Most interesting are the firms using “a multi-pronged approach to managing tariffs, including pushing costs back to suppliers, reconfiguring supply chains, absorbing costs in margins, and passing costs through to customers.”

In Chicago, businesses expect higher inflation over the next 12 months.

In St. Louis, “most contacts expecting nonlabor costs to increase next quarter reported that they would pass along the costs to customers within three months.”

In Minneapolis, more than half of surveyed business claimed they plan to increase prices in the coming future.

Kansas City businesses “generally [anticipate] higher input and output prices in the coming months.” Cost increases from the surge in demand for shipping products ahead of tariffs will be passed on to customers in the next 12 months.

Oilfield services firms in Dallas are having trouble passing along higher costs to customers. Of the Texas businesses who feel able to pass along tariff-related costs, “about 60 percent are doing so within a month of the tariff taking effect, and 90 percent are doing so within three months.”

San Francisco did not provide anecdotes or data on planned price hikes. However, one alarming anecdote came from a business which noted that tariff-related price hikes were not rolled back along with the related rescinded tariff. This inflation “stickiness” is a worrying indicator of how tariff-driven price hikes can cause lasting, cascading price pressures in the economy.

Given these consistent and confirming anecdotes and data points, the CPI looks set to bottom out in coming months if not in the very next report. With Beige Book in hand, the Fed is unlikely to cut rates ahead of more certainty on tariff policy. These reports from the Federal Reserve’s districts underline Jerome Powell’s core desire to see the economic warfare, primarily through tariffs, come to an end.

The Downtrending CPI Is Also Colliding With A Weakening U.S. Dollar

While May’s CPI came in softer than “expected”, its descent still slowed since March’s big drop. The reports from the Beige book suggest that this downtrend could continue if not for tariff-driven price pressures. Instead, fresh inflation agitation likely awaits.

Source: U.S. Bureau of Economic Analysis, Personal Consumption Expenditures Excluding Food and Energy (Chain-Type Price Index) [PCEPILFE], retrieved from FRED, Federal Reserve Bank of St. Louis; U.S. Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers: All Items Less Food and Energy in U.S. City Average [CPILFESL], retrieved from FRED, Federal Reserve Bank of St. Louis. June 12, 2025.

In the meantime, the U.S. dollar continues to weaken. At the time of writing, the U.S. dollar index (DXY0) briefly broke down below its 3-year low set back in April. A weaker dollar means imported goods become more expensive, all else being equal. Thus, the weaker currency will translate into higher inflation in the U.S. except to the extent demand for imported goods falls along with the dollar.

Source: TradingView

Be careful out there!

The post A Calm Before Fresh Inflation Agitation? appeared first on Inflation Watch.

• Amazon.com (AMZN): “we’re seeing lower average selling prices, or ASPs, right now because customers continue to trade down on price when they can.
• Yum Brands (YUM): “The impacts from the Middle East conflict, in addition to a more cost-conscious consumer, have presented headwinds to same-store sales…ensuring we provide consumer’s affordable options has been an area of greater focus for us since last year with all of our brands having offered disruptive deals and introduced or reintroduced the track of everyday value with examples in the US such as KFC’s Taste of KFC deals, Pizza Hut’s $7 Deal Lovers, and Taco Bell’s Cravings Value Menu.”

These are of course just two companies, but their management are telling a familiar and consistent story: consumers are pushing back on price increases. They have had enough. We can no longer blame consumers for inflation.

Unwillingness to Pay

The flip side of this narrative on changing spending habits suggests that consumers played a large role in perpetuating inflationary pressures. If not for their higher willingness to pay – sometimes supported by being flush with stimulus money, sometimes supported by signalling from over-burdened supply chains (aka “seller’s inflation“) – companies would not have had the freedom to do what they do best…charge as much as the market will bear.

The Beige Book from last month is even more telling about the consumers reduced willingness to participate in the inflation game. AP pointed out the following quote under the “Prices” section in the summary:

“While consumer spending was generally reported as showing little to no change almost every District mentioned retailers discounting items or price-sensitive consumers only purchasing essentials, trading down in quality, buying fewer items, or shopping around for the best deals.”

AP also quoted from a speech by Tom Barkin, president of the Federal Reserve Bank of Richmond. Barkin made the observation and strong claim that “while inflation is down, prices are still high, and I think consumers have gotten to the point where they’re just not accepting it…And that’s what you want: The solution to high prices is high prices.” Consumers were too willing to pay and now they are unwilling to pay. Note that Barkin reassured the audience that consumers in his district still exhibit strong demand “at the right price.”

(On the other hand, the Fed also noted important lingering pricing pressures on the producer side: “Most Districts noted that input costs were beginning to stabilize; however, Atlanta specifically noted products like copper and electrical supplies have seen a notable increase over this period.” Later in the Beige Book, the Cleveland Fed reported on the soaring cost of health insurance: “Contact reports of increasing health insurance costs remained pronounced, and one banker said their premium level increased by 15 percent this year compared to an average of 1.6 percent annually over the past 10 years even after they “aggressively” shopped for healthcare plans.”)

Soft Landing?

A potential soft landing is part of the implication of this narrative of consumers’ unwillingness to pay. Consumers are trimming the excesses of spending without cutting down so much that they lead to recessionary pressures. According to the AP, economists estimate that consumers are simply slipping back into pre-pandemic norms of spending habits that will make it much more difficult for companies to raise prices. In other words, the demand “volume” (in terms of units) remains strong, but the spending capacity is not strong. Folks in the financial markets may observe these effects as a “growth recession” given the impact it will have on top-line growth.

Be careful out there!

The post Consumers No Longer Accept the Blame for Inflation appeared first on Inflation Watch.