July 23 (Bloomberg) -- The Federal Reserve said all 12 of its regional bank districts reported ``elevated or increasing'' price pressures during June and July amid slower economic growth.

Five of the districts indicated ``a weakening or softening'' in their economies, and consumer spending was ``sluggish or slowing'' in every region, the central bank said today in its economic survey, known as the Beige Book for the color of its cover.

The survey reinforced testimony by Fed Chairman Ben S. Bernanke to lawmakers this month indicating that risks to both growth and inflation are increasing. Central bank policy makers differ over whether to increase the benchmark interest rate or leave it unchanged.

``The most changes have come about in prices being paid by consumers and by businesses,'' Philadelphia Fed President Charles Plosser said today in an interview with Bloomberg Television. While most policy makers believe inflation expectations are constrained, it's important ``we act before those expectations become unhinged,'' he said.

The Beige Book continues the theme of anemic growth from the June report, which noted the economy was ``generally weak'' in April and May. Household spending ``was reported as mixed, weak or slowing in nearly all districts,'' the Fed said in the current report.

High Gas Prices

``Everything is working against the consumer,'' said Mark Zandi, chief economist and co-founder of Moody's Economic.com. Federal tax rebate checks ``were the only source of cash and now we have to worry about a weakening job market, falling housing values,'' and high gas and food prices.

Fed officials cut the benchmark interest rate 2.25 percentage points in the first four months of this year in the fastest reduction in two decades. The rate is now 2 percent.

Futures traders project 91 percent odds of no change at the next meeting of policy makers on Aug. 5, according to futures prices, and a 61 percent chance of an increase to 2.25 percent or more at the meeting in September.

The economy expanded at an annual rate of 1 percent in the first quarter, capping the weakest six months of growth in five years. The revised gain in gross domestic product was up from a preliminary estimate of 0.9 percent.

U.S. manufacturing ``declined or remained weak in most districts,'' while ``demand for exports remained generally high,'' the Beige Book said. Bank lending ``was generally reported to be restrained.''

Benchmark Rate

The anecdotal reports are included in a package of analysis and data that Fed policy makers consider when determining whether to alter the benchmark interest rate.

The Boston Fed described commercial real estate in its district as ``decidedly morose,'' while the Richmond bank called the Washington area office market ``bleak.'' The Dallas, Cleveland and Minneapolis regions reported more vibrant growth than most other areas.

U.S. consumer prices surged 5 percent in the past year, the biggest jump since 1991, as households struggled with falling home values and the credit crunch. Spiraling expenses for food and fuel spurred the increase in June, the Labor Department said last week.

``Input prices continued to rise, particularly for fuel, other petroleum-based materials, metals, food and chemicals,'' the Beige Book said. ``Wage pressures were generally limited in most districts, as labor market demand was soft except for highly skilled workers and in the energy sector.''

`Yellow Flag'

The Fed has raised ``a yellow flag out there that shows the market they're concerned about inflation, but there's not enough to act on it,'' said Gary Schlossberg, senior economist at Wells Capital Management Inc. in San Francisco. ``Markets are still emerging from the latest signs of stress and the economy is still struggling.''

Minutes of the Federal Open Market Committee's June meeting show that some policy makers favored an increase in the benchmark U.S. lending rate ``very soon.'' Regional Fed bank presidents Richard Fisher of Dallas, Thomas Hoenig in Kansas City, Gary Stern from Minneapolis and Plosser are among those who say they're more concerned about an increase in prices and the Fed should raise rates sooner rather than later.

Higher mortgage costs and continued declines in house prices pose no bar to raising interest rates, Plosser said today. Policy makers must increase borrowing costs before inflation expectations become ``unhinged,'' he said.

Lowest Level

Confidence among U.S. consumers in July remained near the lowest level since 1980, threatening gains in spending. Consumers polled by Reuters/University of Michigan said they expect an inflation rate of 5.3 percent over the next 12 months, compared with a 5.1 percent forecast in the June survey.

Amid slowing growth, U.S. employers have cut payrolls for six straight months, and the nation's jobless rate has held at 5.5 percent.

Payrolls fell by 62,000 in June after a decline of a similar size in May, the Labor Department said on July 3. The latest data brings the drop in payrolls for the first half of 2008 to 438,000.

Crude oil prices reached a record $147.27 on July 11.

The Beige Book's regional anecdotes are gathered through hundreds of telephone calls, news clippings and personal contact by the staff of the 12 Fed banks, whose districts cover all 50 U.S. states. The anecdotes are designed to supplement quantitative forecasts of the Board of Governors staff.

Today's report was prepared by the Kansas City Fed, based on information collected on or before July 14.

To contact the reporter on this story: Vivien Lou Chen in San Francisco at vchen1@bloomberg.net

Last Updated: July 23, 2008 17:12 EDT