US Fed says firms see higher diesel costs filter through economy

US businesses grappling with steep diesel price hikes due to war with Iran are also seeing these higher costs filter through the economy via fuel surcharges, the Federal Reserve said Wednesday. “Higher oil prices permeated all district reports,” the US central bank said in its latest “beige book” survey of economic conditions. “Firms reported elevated diesel prices and noted that fuel surcharges were passing on increased costs throughout the supply chain,” the Fed added. The central bank is due to hold its next interest rate meeting between October 27-28. Energy costs have rocketed since US-Israel strikes on Iran from February caused Tehran to respond by choking off the Strait of Hormuz, a vital waterway for oil and gas transit. But as business costs pile up, consumer-facing firms are seeing “tighter profit margins as price-sensitive customers continue to resist price hikes,” the report said. Some have turned to “selective price hikes, targeted incentives, and menu changes that reduce their costs,” it added. Businesses are also reporting “persistent uncertainty around energy and tariffs and expect that prices will increase further in the coming months” as they renegotiate contracts. Still, most districts in the world’s biggest economy reported some growth in economic activity over the recent weeks. But many firms expect just “slight growth” moving forward, even as their outlooks remain positive for now, the report added. More than half of the districts surveyed flagged that consumer spending has been driven by wealthier households, as rising inflation weighs more heavily on those with lower incomes. Inflation has also sparked “additional wage pressure in the form of higher cost-of-living demands” from workers and growing benefit costs. Meanwhile, “tourism continued to grow, but firms in the Boston, Minneapolis, and San Francisco Districts noted a decline in sales from Canadian tourists,” the Fed said. This comes as US-Canada trade talks collapsed in August, with the North American neighbors now locked in a tariff fight.