MW 'Squeezing more life out of every dollar': How inflation is forcing a new reality on American families and amplifying the economy's 'K shape'
By Greg Robb
Higher consumer prices are reining in spending among lower- and middle-income consumers, Fed's beige book reports
Higher energy costs are pushing up grocery-store prices.
Inflation surged throughout the U.S. economy in late April and May, forcing Americans to try to adjust quickly to a new phase of reduced spending power, according to the Federal Reserve's latest report on economic conditions around the country known as the "beige book."
Affordability pressures due to higher energy prices from the war with Iran led to a widening gap between spending across income groups, the Fed said.
Low-income consumers showed the most financial strain.
In the Kansas City region, middle-income households were described as "squeezing more life out of every dollar before deciding to spend it."
Only higher-income households, less sensitive to price increases, remained resilient.
The K-shaped-economy phenomenon was in evidence at one large shopping mall in New York state. The mall reported that higher-end tenants were seeing particularly strong demand for luxury goods, with affluent buyers focused on accessories, especially wristwatches. At the same time, midtier and lower-end retail tenants experienced more subdued sales.
In Atlanta, a business contact said that higher-end consumers were focused on "unapologetic luxury."
To adjust, most Americans turned to credit cards, fewer retail visits and a focus on necessities.
Overall, the subdued spending led to a slight to moderate growth pace across the country, the Fed survey found.
And inflation wasn't confined to gasoline prices. Higher energy prices spilled over to shipping, packaging, groceries and fertilizer.
There were also reports of higher prices for many items outside of energy, including auto repairs and electronics.
The survey showed that businesses worried about their profit margins and debated whether to pass along their higher costs to consumers.
Several Fed districts highlighted the inflation-mitigation strategies of businesses that ranged from supply-chain adjustments, reduced offerings and absorbing higher costs themselves to preserve customer demand.
In the Northeast, according to the Fed report, "most contacts did not plan to raise their output prices in the near term, even though many were concerned that cost pressures linked to the Middle East conflict could persist for a while."
In Philadelphia, "consumer-facing" businesses held their prices steady, but manufacturers adjusted their prices upward by a 21/2-year high of over 4%.
The beige book is "the latest warning sign that inflation is quickly turning into a sticky problem," said Heather Long, chief economist at Navy Federal Credit Union. "It's a tricky environment for the Fed, but for now the economy has an inflation problem."
The new Fed chair, Kevin Warsh, and his colleagues will meet June 16-17 to discuss interest-rate policy.
"Warsh has to assure the world - especially bond investors - that he will do whatever it takes to ensure inflation comes back down to normal," Long said.
-Greg Robb
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
June 03, 2026 15:53 ET (19:53 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
Comments