Prices across the United States have been rising at a “moderate to strong pace” in recent weeks, with the Federal Reserve pointing to surging energy costs linked to the ongoing war with Iran as a key driver of inflationary pressure.
In its latest Beige Book survey, which compiles economic insights from the Fed’s 12 regional districts, the central bank said businesses widely reported that higher costs tied to the Middle East conflict were filtering through the economy. These increases were most visible in energy markets, but were also spilling into shipping, packaging, grocery prices and fertiliser.
The conflict, which escalated after the US and Israel launched military action against Iran on February 28, has destabilised the region and disrupted global energy flows. Retaliatory strikes and escalating tensions have effectively blocked the Strait of Hormuz, a vital shipping route through which roughly one-fifth of global oil and gas supplies normally pass. The disruption has contributed to a sharp rise in energy prices and created widespread supply chain strain.
The Federal Reserve noted that inflationary pressures have been unevenly absorbed across businesses. Some firms reported that they were unable to pass rising costs fully onto consumers, forcing them to absorb losses through reduced profit margins in order to maintain sales volumes.
Consumer behaviour has also shifted under the pressure of higher prices. The report highlighted what economists describe as a “K-shaped economy,” where wealthier households continue to spend steadily or even increase consumption, while lower-income groups face tightening financial conditions.
Middle-income households were described as becoming more cautious, delaying discretionary purchases and seeking greater value from everyday spending. Lower-income consumers, meanwhile, are experiencing more acute financial strain.
Spending patterns reflected these pressures, with increased reliance on credit cards, fewer retail store visits and stronger demand for essential goods.
Despite inflationary concerns, overall economic activity in the United States continued to expand at a slight to moderate pace in 10 of the 12 Federal Reserve districts. One district reported a slight decline, while another saw no change.
Employment conditions remained broadly stable, with little movement in hiring across 11 districts. Only one district reported modest job growth.
Manufacturing-related hiring showed relative strength in several regions, supported by defence contracts and growing demand linked to data centre expansion. The Fed also observed a continued “low-hire, low-fire” labour market environment, where job switching has slowed as workers remain cautious amid economic uncertainty.
Taken together, the Beige Book suggests an economy still expanding, but increasingly shaped by energy-driven inflation, uneven consumer resilience, and cautious business hiring behaviour.
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