No Obvious Inflation Indicators, Fed Says

There was no clear-cut evidence of mounting inflation in August as the economy kept growing moderately, the Federal Reserve Board said Wednesday, though there were signs that wage pressures were building.

The Fed’s latest “beige book” summary of national economic activity was issued amid worry that central bank policymakers might boost short-term interest rates this month to quash inflation risks.

“Inflation indicators . . . were varied and generally inconclusive, although there appears to be greater upward pressure on wages than on prices,” concluded the beige book summary, prepared by the Cleveland Fed branch.

Analysts said companies were probably having difficulty passing price rises on and warned that rising wages eventually will lead to intensified corporate efforts to boost prices because wages account for two-thirds of production costs.

Few businesses in any Fed district saw big price increases since the last survey was concluded on July 30, but none indicated that inflation pressures were subsiding. Some industrial commodities like lumber and steel were rising in price, but it was generally confined to a few markets.

“Wage gains have tended to outstrip price increases, however,” the Fed said. The upward pressure on wages seemed most intense in the Richmond and San Francisco Fed districts, but many regions reported increases for entry-level jobs.

The Fed findings were based on information collected in interviews with businesses before Sept. 4 in the 12 Fed districts. They will be used when the central bank’s Federal Open Market Committee meets Sept. 24 to decide interest-rate strategy.

The beige book surveys are released at about six-week intervals, with the last one published Aug. 7. The latest survey suggested the economy was holding its momentum entering the second half, rather than slowing.

“Business activity in most districts is reported to be generally good and expanding moderately,” the Fed said.

Economist Lynn Reaser of Barnett Banks Inc. in Jacksonville, Fla., said wage increases of about 4% a year were exceeding productivity gains at this point and suggested the central bank would be well-advised to act now to keep the 5 1/2-year-old expansion going.

“Some increase in interest rates now would not likely damage the economy’s growth trend significantly, and it would be appropriate given the upward pressure on wages,” she said.

Reaser added that the beige book did not suggest an economy that was overheating, but it showed “solid and expanding” growth that carries the potential for escalating wages and prices if they are not reined in through tighter credit.

The Clinton administration probably would prefer not to see interest rates raised with Nov. 5 general elections on the horizon. On Wednesday, Labor Secretary Robert Reich said in an interview that he saw no inflation threat from wages that were growing after a 15-year decline.

He urged that in weighing greater employment against avoidance of inflation, the needs of those who might become “casualties” in a war on inflation be taken into account.

The Fed said that “pockets” of labor market tightness were developing in many regions, with a few saying the scarcity of workers was broadly based.