Businesses in the Pittsburgh region expanded production and ramped up hiring in May and early June, but wrestled with whether to pass on higher materials prices to consumers.

That's according to the Federal Reserve's latest snapshot of the nation's economy, based on surveys by its 12 member banks, including the fourth district in Cleveland that includes Western Pennsylvania.

The so-called "beige book," named for its cover, released yesterday signaled that the economy was slowing in some parts of the country but still was growing enough to justify another expected rate increase later this month by the Fed. Policymakers at the central bank have indicated that stanching budding inflationary pressures remain their primary concern.

"High energy costs were fueling price increases in manufacturing and, to a much lesser extent, retail," the Fed said. "Reports of costs being passed forward varied considerably, but were more prevalent than in the last beige book."

In the Cleveland district, which also encompasses all of Ohio and parts of West Virginia and Kentucky, "most manufacturers reported steady to increasing production in recent weeks" and retailers "reported better-than-anticipated increases in sales," the Cleveland Fed said.

The only exceptions, it noted, were on the auto sales and auto production front, where higher energy prices appeared to cut into demand. Discount retailers also said higher gas prices were slowing customer traffic, though sales were running ahead of year-ago levels.

Nationally, four of the 12 Fed districts surveyed -- Atlanta, Kansas City, Richmond and San Francisco -- said economic activity moderated, while Cleveland was among seven others -- Boston, Chicago, Dallas, Minneapolis, New York and St. Louis -- that said growth was about the same as in the Fed's last report, released in April. Only one district reported an improvement in economic conditions: Philadelphia.

Consumers -- a key force shaping overall economic activity -- did ring up sales, but they also showed signs of caution, the Fed said. It noted that some districts reported retail sales were slowing at discount stores that cater to lower-income customers, who especially have felt the pinch of lofty gas prices.

"High gasoline prices were cited by a few districts as changing purchasing patterns or clouding the outlook for sales," the Fed survey said. "A couple of districts also said that rising interest rates were a concern."

The Fed's survey was taken after the latest run-up in energy prices. Oil prices zoomed to a record high of $75.17 in late April. They have retreated somewhat and now are hovering above $68 a barrel. Gasoline prices, meanwhile, have dipped a bit since then but still top $3 a gallon in many areas of the country.

The survey also was taken after the Fed boosted interest rates to a five-year high to help fend off inflation. The central bank's action on May 10 marked the 16th rate increase since June 2004.

On the inflation front, the survey -- completed by June 5 by district banks -- said "concerns about high or rising costs were expressed by business contacts across much of the country." In some Fed districts, this led to higher selling prices for manufacturers.

Higher prices were reported for items including fuels, metals, petroleum-based products and many building materials, such as concrete, steel, cooper and zinc.

Some firms in the Philadelphia district said suppliers were including automatic price escalation in contracts to cover future increases in the cost of materials. A number of districts reported increases in fuel surcharges.

Although businesses were more likely to pass along some of their increased costs to each other in the form of higher prices, they were a bit more restrained in jacking up prices for consumers.

"Just three districts -- Boston, Dallas and Philadelphia -- reported that retailers are having success raising retail prices," the Fed report said. Some other districts reported little change in retail prices.

The snapshot of economic conditions nationwide will figure into discussions at the Fed's next meeting to examine interest rates on June 28-29.

Federal Reserve Chairman Ben Bernanke last week called rising inflation unwelcome and pledged to take action to snuff it out. The message, which sent stocks around the world tumbling, was seen as a strong signal that interest rates will go up again later this month.

For the first five months of this year, consumer prices were rising at an annual rate of 5.2 percent -- well ahead of the 3.4 percent increase registered for all of 2005, the Labor Department reported yesterday. Surging gasoline prices helped trigger the increase.

On other matters, the Fed noted that the housing market showed fresh signs of cooling and that there was a slowing in loans to consumers, particularly for mortgages and home equity loans.