Atlanta Fed: Firms’ Year-Ahead Inflation Expectations ‘Relatively Unchanged’ at 2.2%

Firms’ year-ahead inflation expectations remained “relatively unchanged” in August, staying just above where they were before the pandemic, the Federal Reserve Bank of Atlanta said Wednesday (Aug. 21).

On average, firms expect inflation of 2.2%, according to the Atlanta Fed’s Wednesday press release about its Business Inflation Expectations (BIE) Survey for August.

That figure is down slightly from the 2.4% recorded in its July survey.

“Year-ahead unit cost expectations have fallen meaningfully since hitting a peak of 3.8 percent in April 2022 but remain somewhat elevated relative to their prepandemic average of 2.0 percent (from January 2017 through December 2019),” the Atlanta Fed said in its report on the survey.

The August survey also found that the average year-over-year cost growth remained relatively unchanged at 2.6%; sales levels and profit margins “compared to normal” decreased; and firms changed their prices by 5.6% on average over the last 12 months.

This report comes about a week after the Cleveland Fed said business leaders are growing more optimistic about the likely trend of inflation.

CEOs and other top executives said in July that they expect inflation to be 3.4% over the next 12 months, an expectation that is down from the 3.8% these leaders said in April that they anticipated, the Cleveland Fed said in an Aug. 12 press release.

“The Cleveland Fed reports these survey data because business leaders’ inflation expectations can influence the prices their firms charge customers, and these prices can, in turn, influence the path of inflation,” the organization said in the release.

Another recent survey found that consumers’ year-ahead inflation expectations remained unchanged at 2.9%.

The University of Michigan Survey of Consumers’ preliminary results for August found that consumers’ year-ahead inflation expectations stayed the same as the previous month and within the range of 2.3% to 3% that was seen in the two years prior to the pandemic.

Consumers’ long-run inflation expectations were gauged at 3%, which was the same as the previous five months and slightly elevated in comparison to the 2.2% to 2.6% range recorded during the two years before the pandemic.

The fact that inflation is still elevated means that consumers are likely gritting their teeth a bit as they endure the current 2.9% pace that they expect, and which was the official reading seen in July, PYMNTS reported Friday (Aug. 16).