A guide to the Atlanta Fed Business Inflation Expectations Survey

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Mar. 27 2014, Published 5:56 p.m. ET

The Atlanta Fed Business Inflation Expectations Survey

The Business Inflation Expectations (or BIE) Survey was created to measure the coming year’s inflationary sentiments for businesses in the Sixth District, which encompasses Alabama, Florida, Georgia, and sections of Louisiana, Mississippi, and Tennessee. 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. It also helps inform the Atlanta Fed’s view of the sources of cost changes and provides insight into the factors driving business’ pricing decisions.

Part 2

An increase in the coming year’s inflation expectations would imply that firms expect to pay higher costs for inputs or receive higher prices for outputs.

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The survey includes several questions that are a monthly feature as well as special questions that firms may be asked to respond to either on a quarterly basis or depending upon economic circumstances. Key questions in the survey that are monthly pertain to questions about current sales levels, costs, and profit margins. Firms are also asked about their inflation expectations.

Quarterly questions may discuss one of the following:

  • Long-term (five-to-ten-year) inflation expectations
  • The relative impact of variables (labor and non-labor costs, sales levels, productivity, and margin adjustments) on product pricing
  • The percentage by which average unit sales exceed or are below normal, if at all

Each month, the survey also poses special questions that may survey firms on their unit sales and cost expectations, labor costs, et cetera, and ask them to assign a probability to their expectations. This question changes from month to month.

We’ll discuss March’s survey responses to all these questions and their impact on fixed income ETFs—like the iShares 20+ Year Treasury Bond ETF (TLT), the SPDR Barclays Cap Investment Grade Floating Rate ETF (FLRN), and the iShares iBoxx $ High Yield Corporate Bond ETF (HYG).

Inflation impacts the overall economy and will also affect equity ETFs like the State Street SPDR S&P 500 ETF (SPY). The top ten holdings in SPY include energy companies Exxon Mobil (XOM) and Chevron (CVX). Companies in the basic materials and energy sectors are some of the most immune stocks from inflationary trends in the economy, as they find it easier to pass on cost increases to customers.

To learn more about the results of the BEI survey, and firms’ inflation expectations, read on to Part 3 of this series.

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