The Business Conditions Index, an economic indicator for a nine-state region in the Midwest, fell for the second straight month as the inflation gauge climbed to its highest level since 1994.

Nearly half of the respondents to a survey in Arkansas, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Oklahoma and South Dakota reported that suppliers are adding transportation surcharges to deal with escalating energy costs.

Supply managers expect prices for the products and services they purchase to increase at an annualized pace of 9.6 percent in the next six months.  

But the index, which fell to 57.7 in April from 61.4 in March, is still above growth-neutral 50 and remained in a range pointing to positive, albeit slowing economic progress for the next three to six months.

“As higher agricultural commodity prices improve the outlook for firms linked to the farm sector, we are beginning to see high energy prices cut into economic growth,” said Ernie Goss, a Creighton University economics professor.

In Iowa, the Business Conditions Index edged up by 0.02 point to 67.9 in April from March.

“The weak dollar has been especially good for Iowa’s manufacturing sector, particularly producers closely tied to international markets or agriculture,” Goss said. “The weak dollar policy of the Fed will continue to bolster Iowa manufacturing and the overall state economy.”