Higher-income households are weathering higher inflation better than middle- and lower-income Americans, underscoring the prevalence of the so-called K-shaped economy, according to the Federal Reserve's Beige Book released Wednesday.
"Higher-income households remained resilient and less sensitive to price increase, while middle-income households were described as 'squeezing more life out of every dollar before deciding to spend it,' and low-income consumers showed greater financial strain," the report read.
Read more: What is a 'K-shaped' economy, and what’s causing the divide?
The Beige Book is a compilation of anecdotal reports on economic conditions in the Fed's 12 districts. Information is gathered through interviews with local business owners, economists, and others.
Overall, there were reports of increased credit card usage, fewer retail visits, and stronger demand for necessities, giving a window into consumers' current pressure points.
Prices increased at a moderate to strong pace overall, with most Fed districts reporting higher inflation in May than in April. Higher energy prices tied to the conflict in the Middle East primarily drove inflation higher, with spillovers into shipping, packaging, groceries, and fertilizer.
Input costs continued to rise more quickly than selling prices, contributing to broader concerns about squeezed profit margins.
The ability to pass on higher costs remained mixed across sectors, particularly among consumer-facing firms. Energy activity increased in two of the markets, but the outlook remains highly uncertain, leading producers to hold off on materially expanding activity.
Fed officials will use this information at their next policy meeting in two weeks as they weigh a decision on interest rates.
Jennifer Schonberger is a veteran financial journalist covering markets, the economy, and investing. At Yahoo Finance she covers the Federal Reserve, Congress, the White House, the Treasury, the SEC, the economy, cryptocurrencies, and the intersection of Washington policy with finance. Follow her on X @Jenniferisms and on Instagram .
