Americans are facing growing affordability pressures, and companies are having mixed results in passing on higher costs, the Federal Reserve said in its May Beige Book released Wednesday (June 3).
The Beige Book, which is published eight times a year and summarizes anecdotal information on current economic conditions gathered by Federal Reserve Banks, found that most Federal Reserve Districts reported that inflation had risen since the April report.
“Districts noted that energy-related costs tied to the conflict in the Middle East were the primary driver of inflationary pressures, with spillovers into shipping, packaging, groceries and fertilizer,” the report said. “Non-labor input costs continued to rise faster than selling prices, contributing to broader concerns about margin compression.”
The Federal Reserve Districts reported that companies were having mixed results when trying to pass on higher costs, especially consumer-facing firms, and that fuel prices were impacting households.
“Several regions highlighted inflation mitigation strategies of firms that ranged from supply-chain optimization, product adjustments, reduced offerings, and temporarily absorbing higher costs to preserve customer demand,” the Beige Book said.
The report found that amid these affordability pressures, different income groups were responding in different ways. Higher-income households remained less sensitive to price increases, middle-income ones were more selective in their spending, and lower-income ones showed greater financial strain.
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“Overall, there were reports of increased credit card usage, fewer retail visits and stronger demand for necessities,” the Beige Book said. “Auto dealers reported softer new vehicle demand tied to affordability and fuel costs, alongside substitution toward used and hybrid vehicles.”
The PYMNTS Intelligence report “The Cutback Economy: How Age, Behavior and Financial Pressure Shape Consumer Spending” found that the gap between what households are trying and what is actually working is widening as inflation remains elevated and essentials continue to absorb more of the monthly budget. In this environment, simply cutting back is proving less effective for consumers already operating with fewer financial buffers.
Dollar General reported Tuesday (June 2) that it is attracting consumers among all income groups as economic pressures mount. During the first quarter, the company saw growth in customer penetration across low-, middle- and high-income cohorts as an increasing share of consumers seek value.
