Atlanta Fed Business Inflation Expectations: Is inflation rising?



The Atlanta Fed Business Inflation Expectations Survey

What is the “Atlanta Fed Business Inflation Expectations Survey”? The BIE was created to measure businesses’ inflationary sentiments for the year ahead. A monthly survey, it gives an estimate of inflation expectations and uncertainty from the perspective of individual firms. The firms respond to questions about their business conditions, inflation outlook, and potential pricing pressures. The survey also helps inform the Atlanta Fed’s view of the sources of cost changes and provides insight into the factors driving business’ pricing decisions.

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According to last month’s (January’s) survey results, the 208-firm survey pegged business inflation expectations for the upcoming year at 1.9%. Firms also reported that, compared to this time last year, their unit costs are up 1.7%. Companies further reported that they expect costs to increase by 2.8% per annum over the next five to ten years.

Respondents reported a slight decline in sales levels in January, with approximately 49% indicating that their current sales levels are at or above normal, compared to 54% in December. Profit margins also declined somewhat, with roughly 45% of respondents indicating their profit margins are at or above normal, compared to 50% in December. The sales declines reported could be in response to the unseasonably colder weather. But the most compelling indicator for economic recovery was the average respondent’s unit sales growth expectation of 4.3% over the next 12 months.

Judging by the survey results, it would appear that inflation is well on the way to the Fed’s long-term target of 2%. However, the indicator has ranged between 1.5% and 2.5% for quite some time now, yet inflation shows no signs of inching up from the 1% levels we’ve seen. A more compelling sign is the 1.7% cost increases that firms have already incurred compared to last year, which may indicate that inflation will finally be on the way up. Also, the year-on-year actual cost increases actually incurred by the firms surveyed are slightly more than what was recorded in 2012.

To find out more about how job vacancies will impact debt markets, read on to Part 4 of this series.


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