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BIE January 2015 Atlanta Fed Survey of Business Inflation Expectations For immediate release: January 14, 2015 Contact: Jean Tate, 404-498-8035 or jean.tate@atl.frb.org The year-ahead inflation expectations of businesses were 1.7 percent in January, according to the Federal Reserve Bank of Atlanta’s most recent business inflation expectations (BIE) survey. The survey was conducted January 5–9, with 224 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 indicated that, on average, they expect unit costs to rise 1.7 percent over the next 12 months. Inflation uncertainty was down one-tenth of a percentage point to 2.3 percent. Firms also report that, compared to this time last year, their unit costs are up 1.6 percent. Respondents’ sales levels, compared to what they consider normal conditions, remained steady, with approximately 63 percent of respondents indicating current sales levels are at or above normal. Profit margins were improved somewhat, with roughly 53 percent of respondents indicating their profit margins are at or above normal. Quarterly question: Long-term inflation expectations Over the long term, that is, per year over the next five to 10 years, respondents expect unit costs to increase 2.6 percent, on average, down two-tenths of a percentage point from the October reading. Respondents’ uncertainty (variance) regarding this expectation was 2.3 percent. Special question: Influence of price statistics on business decisions The question assessed the level of influence that “price statistics such as the Consumer Price Index” have on firms’ business decisions. The majority of firms (55 percent) indicated that these statistics have little or no influence on their business decisions. Thirty-two percent of respondents noted a moderate influence, and the remaining 13 percent indicated a somewhat more significant level of influence. Please see page 3 for a breakdown of the results. 1 Monthly Questions Year-Ahead Inflation Expectations and Uncertainty (percent) 3.5 3.0 2.5 2.3 2.0 1.7 1.5 Uncertainty Year-ahead inflation expectations 1.0 0.5 0.0 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Source: Atlanta Fed Business Inflation Expectations (BIE) Survey Sales Levels and Profit Margins Compared to Normal Times Year-over-Year Unit Costs (percent) (diffusion index, 0+ = greater than normal times) 3.5 10 Sales levels above normal below normal 0 Profit margins 3.0 -8 2.5 -10 2.0 -20 1.5 -20 -30 1.6 1.0 -40 0.5 0.0 -50 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jan-12 Source: Atlanta Fed Business Inflation Expectations (BIE) Survey Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Source: Atlanta Fed Business Inflation Expectations (BIE) Survey Quarterly Question Long-Term Inflation Expectations and Uncertainty (percent, per year over the next five to 10 years) 3.5 3.0 2.6 2.5 2.0 2.3 1.5 Long-term inflation expectations Uncertainty 1.0 0.5 0.0 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Source: Atlanta Fed Business Inflation Expectations (BIE) Survey 2 Apr-14 Jul-14 Oct-14 Jan-15 Special Question On a scale from 1 to 5 with 1 being no influence, please indicate what level of influence, if any, price statistics such as the Consumer Price Index have on your business decisions. (percentage of responses) 35% 30% 25% 20% 15% 10% 5% 0% No influence (1) Moderate influence Source: Atlanta Fed Business Inflation Expectations (BIE) Survey 3 Significant influence (5) 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* November 9% 30% 36% 23% 2% -11 December 7% 34% 35% 22% 2% -11 January 9% 28% 35% 27% 1% -8 How do your current PROFIT MARGINS compare with “normal” times? Much less Somewhat less About normal Somewhat greater Much greater Diffusion index* November 11% 40% 34% 13% 2% -23 December 11% 41% 28% 19% 1% -21 January 9% 38% 36% 16% 1% -20 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%) Up moderately (3.1% to 5%) Up a lot (>5%) Mean November 3% 20% 59% 14% 4% 1.9% December 4% 21% 62% 10% 3% 1.7% January 6% 24% 58% 10% 2% 1.6% 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%) Mean (Variance) November 7% 24% 41% 19% 9% 2.0% (2.4%) December 7% 25% 43% 17% 8% 1.9% (2.4%) January 8% 26% 44% 16% 6% 1.7% (2.3%) Quarterly Question: Projecting ahead, to the best of your ability, please assign a percent likelihood to the following changes to unit costs per year over the next FIVE TO 10 years. Unit costs down (<-1%) Unit costs about unchanged (-1% to 1%) Unit costs up somewhat (1.1% to 3%) Unit costs up significantly (3.1% to 5%) Unit costs up very significantly (>5%) Mean October 2012 (196) 4% 13% 36% 30% 17% 2.9% (2.7%) January 2013 (196) 3% 12% 32% 28% 23% 3.0% (2.5%) April 2013 (189) 4% 12% 38% 26% 20% 2.9% (2.2%) July 2013 (209) 4% 14% 37% 28% 15% 2.8% (2.4%) October 2013 (216) 4% 15% 45% 26% 11% 2.7% (2.4%) January 2014 (208) 4% 20% 43% 21% 11% 2.8% (2.3%) April 2014 (181) 3% 16% 42% 30% 8% 2.7% (2.5%) July 2014 (223) 4% 19% 35% 26% 14% 2.8% (2.3%) October 2014 (208) 4% 16% 39% 25% 15% 2.8% (2.4%) January 2015 (216) 4% 14% 43% 26% 13% 2.6% (2.3%) Month (number of responses) 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. 4