Fed's Beige Book tells inflation story

A grocery chain says it now costs more to ship a head of lettuce from California than to buy the lettuce itself. Tech companies are trying to purchase entire inventories of electrical equipment to build data centers.

Why it matters: These anecdotes from the Fed's latest Beige Book show how two extraordinary forces — the AI buildout and the Iran war — are changing decisions about spending, investment and hiring.

• The implications extend beyond individual firms, with consequences for inflation and employment, as the Fed weighs another rate hike.

Zoom in: A grocery chain told the Richmond Fed that diesel prices have risen 30% from a year earlier — making shipping lettuce more expensive than the cost of the vegetable — but price-sensitive customers have left it unable to pass along the higher costs.

• The energy shock is also squeezing businesses locked into earlier contracts: A Montana timber company said fuel costs had more than doubled on a project negotiated months earlier.

The AI boom is creating another strain, intensifying competition for equipment needed to build data centers.

• An electrical equipment distributor told the Chicago Fed that tech companies tried to buy up all of its available equipment. Suppliers resisted, citing commitments to other customers.

What to watch: AI is changing how many workers businesses believe they need and what they need them to do in ways not yet apparent in broader labor market data.

• In Dallas, an accounting industry contact said some large firms were delaying employment contracts because AI productivity gains could reduce their need for entry-level workers.
• A staffing firm in the area said AI agents conducted more than 180 hours of job interviews in two days, leaving human recruiters to review the results and make hiring decisions.