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BIE February 2013 Atlanta Fed Survey of Business Inflation Expectations For immediate release: February 13, 2013 Contact: Jean Tate, 404-498-8035 or jean.tate@atl.frb.org The year-ahead inflation expectations of businesses rose to 1.9 percent in February, from 1.8 percent in January, according to the Federal Reserve Bank of Atlanta’s most recent business inflation expectations (BIE) survey. The survey was conducted February 4-8 with 199 firms responding to questions about their business conditions, inflation outlook, and potential pricing pressures. The results are summarized below. Year-ahead inflation expectations and current conditions Respondents indicate that, on average, they expect unit costs to rise 1.9 percent over the next 12 months, essentially unchanged from the January measure of 1.8 percent, and roughly in line with the recent yearahead inflation forecasts of private economists. Inflation uncertainty was unchanged at 2.4 percent in February. Firms also report that, compared to this time last year, their unit costs are up 1.7 percent. Sales levels and profit margins remain well below normal. Quarterly question: Factors influencing price change Compared to the November measure, respondents indicate that sales levels are expected to put significantly more upward pressure on prices over the next 12 months. Most firms expect labor costs to have little to no influence or moderate upward influence on prices over the next 12 months. Expectations for non-labor costs (including materials, commodities, and transportation) lean more toward moderate to strong upward influence. Most firms do not expect changes in productivity or margins to significantly impact prices over the next 12 months. Special question: Frequency of price change The February special question asked respondents to indicate what percentage of their products and/or services change price daily, weekly, monthly, quarterly, semiannually, annually, and less often than annually. On average, the largest proportion of products and/or services (33 percent) change prices only annually. By industry, we note that goods and services sold by manufacturers adjust prices considerably less frequently than those sold by retailers. A chart of the full results is on page 3. For more information and interactive charts, visit the BIE survey site at www.frbatlanta.org/research/inflationproject/bie/. Monthly Questions Year-Ahead Unit Cost Expectations and Uncertainty (percent) 3.5 3.0 2.5 2.0 1.5 1.0 Uncertainty Year-ahead unit cost expectations 0.5 0.0 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Source: Atlanta Fed Business Inflation Expectations (BIE) Survey Unit Costs Compared to This Time Last Year Sales Levels and Profit Margins Compared to Normal Times 5 0 -5 -10 -15 -20 -25 -30 -35 -40 -45 (percent) (diffusion index, 0+ = greater than normal times) 3.5 3.0 Sales levels 2.5 Profit margins 2.0 1.5 1.0 0.5 Feb-12 May-12 Aug-12 Nov-12 Feb-13 Source: Atlanta Fed Business Inflation Expectations (BIE) Survey 0.0 Feb-12 May-12 Aug-12 Nov-12 Feb-13 Source: Atlanta Fed Business Inflation Expectations (BIE) Survey Quarterly Question Projecting ahead, over the next 12 months, how do you think the following five common influences will affect the prices of your products and/or services? (diffusion index, 0+ = upward influence on prices) 50 40 30 20 10 0 -10 Feb-12 Sales Levels May-12 Labor Costs Aug-12 Margin Adjustments Source: Atlanta Fed Business Inflation Expectations (BIE) Survey Nov-12 Productivity Feb-13 Non-Labor Costs Special Question What percentage of your products and/or services change prices ________? 40 35 30 25 20 15 10 5 0 Daily Weekly Monthly Quarterly Retail and wholesale trade Source: Atlanta Fed Business Inflation Expectations (BIE) Survey Semiannually Manufacturing Annually All Less often than annually How do your SALES LEVELS compare with sales levels during what you consider to be "normal" times? Much less Somewhat less About normal Somewhat greater Much greater Diffusion index* December 14% 41% 26% 17% 2% -24 January 14% 43% 29% 14% 0% -29 February 17% 41% 29% 13% 1% -30 How do your current PROFIT MARGINS compare with "normal" times? Much less Somewhat less About normal Somewhat greater Much greater Diffusion index* December 15% 37% 37% 11% 1% -27 January 14% 45% 35% 6% 0% -34 February 16% 39% 36% 9% 0% -31 Up a lot (>5%) Average Looking back, how do your UNIT COSTS compare with this time last year? Down (<-1%) About unchanged (-1% to 1%) Up somewhat (1.1% to 3%) December 8% 27% 53% 9% 3% 1.5% January 7% 24% 54% 11% 4% 1.6% February 6% 23% 56% 13% 2% 1.7% Up moderately (3.1% to 5%) Projecting ahead, to the best of your ability, please assign a percent likelihood to the following changes to unit costs over the next 12 months. Down (<-1%) About unchanged (-1% to 1%) Up somewhat (1.1% to 3%) Up moderately (3.1% to 5%) Up a lot (>5%) Average (Variance) December 7% 26% 42% 17% 8% 1.9% (2.5%) January 6% 28% 42% 17% 7% 1.8% (2.4%) February 5% 26% 43% 17% 8% 1.9% (2.4%) Projecting ahead over the next 12 months, how do you think the following five common influences will affect the prices of your products and/or services? Strong downward influence Moderate downward influence Little/no influence Moderate upward influence Strong upward influence Diffusion Index† Labor Costs August 2% 0% 40% 54% 4% 29 November 0% 2% 36% 53% 9% 34 February 0% 1% 38% 55% 5% 33 Non-Labor Costs August 0% 2% 26% 58% 14% 42 November 0% 2% 22% 63% 13% 43 February 0% 2% 21% 69% 9% 42 Productivity August 0% 19% 64% 16% 1% -1 November 0% 17% 64% 17% 1% 1 February 0% 11% 74% 13% 2% 2 Margin Adjustments August 2% 15% 55% 26% 1% 5 November 2% 13% 54% 28% 3% 9 February 4% 11% 56% 30% 0% 6 5 Sales Levels August 4% 21% 42% 29% 4% November 3% 24% 45% 24% 3% 1 February 2% 8% 48% 38% 3% 16 Note: Percentages may not sum to 100 due to rounding. *The diffusion index is calculated as an average response such that each response of much less is assigned a value of –100; somewhat less is assigned a value of –50; about normal, 0; somewhat greater, 50; and much greater, 100. Therefore, a positive index value implies that the indicator is greater, on average, and a negative index value implies that the indicator is lower, on average. †The diffusion index is calculated such that each response of strong downward influence is assigned a value of –100; moderate downward influence is assigned a value of –50; little/no influence, 0; moderate upward influence, 50; and strong upward influence, 100. Therefore, a positive index value indicates that overall prices are being influenced upwards, on average, and a negative index value indicates that prices are being influenced downwards on average.