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Kansas Fed Survey Shows Sticky Input Costs, Dollar Impact
Two-thirds of firms report input prices changing more often. Kansas Fed data reinforces higher-for-longer rate path that underpins dollar yield advantage.
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Manufacturing activity in the Kansas City Fed’s Tenth District expanded further in May. Raw materials prices stayed elevated, and firms reported that cost pressures are not fading. Assistant vice president Cortney Cowley stated that activity rose and firms anticipate continued growth ahead, while still citing elevated cost pressures. For forex traders, this regional survey reinforces the Federal Reserve’s incentive to keep rates higher for longer – a backdrop that underpins the dollar’s yield advantage over currencies from economies where central banks are cutting.
Cost Pressure Signal for Fed Rate Path
The survey included special questions on how often input and output prices are changing relative to last year. 65% of firms said their input prices are changing more often. Only 10% reported less frequent changes. On the output side, 33% saw more frequent changes, versus 14% less often. That asymmetry – a wide gap between input and output price frequency – signals that businesses are absorbing some cost pressure but are increasingly passing it through to customers. Nearly two-thirds of firms reporting more frequent input price changes is a leading indicator that inflation may remain stickier than headline CPI prints currently imply. This supports the hawkish leaning inside the Federal Open Market Committee and keeps rate differentials tilted toward the dollar.