Businesses getting pricing power, Fed survey finds

Some manufacturers and retailers are finding that they can raise their prices, which is one key pre-condition for inflation to take hold, according to the Federal Reserve’s latest Beige Book survey of economic conditions released Wednesday.

“Manufacturers in many districts conveyed that they were passing through higher input costs to customers or planned to do so in the near future,” the survey found.

Meanwhile, “retailers in some districts mentioned that they had implemented price increases or were anticipating such action in the next few months,” the report said.

Firms have been reporting higher prices for input prices for months but have always said they have been unable to raise prices for fear of losing market share.

The ability of firms to pass along higher costs will be a matter of concern for Fed officials.

But the central bankers will draw some comfort because wages are not rising. Wages are another key inflation ingredient.

Federal Reserve Chairman Ben Bernanke told Congress this week that stable wages were offsetting some of the cost pressures from higher commodity prices.

Overall, the economy was improving at a “modest to moderate” pace, the Beige Book report concluded.

Most districts reported that conditions in their regions were improving. Only the Chicago region reported that the pace of growth was not quite as strong as late last year.

Labor markets were seen as improving modestly. Three districts reported that temporary jobs were being converted into permanent hires.

According to the latest report, manufacturing growth was solid and service activity was strengthening.

One important development was that commercial real estate improved in several districts, the first report of any pickup in office and factory projects since at least the beginning of the recession in late 2007.

Retail activity increased in almost all districts, although snowstorms limited activity in some regions.

The survey, a collection of anecdotes from the 12 Fed district banks, was collected by the Atlanta Fed. It is based on information collected before Feb. 18.

The report is designed to give Fed officials some feel for conditions throughout the country as they prepare for the next Federal Open Market Committee meeting on March 15 to set monetary policy.

Fed officials also receive much more detailed economic data closer to the meeting. These reports are not publicly released.