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BIE October 2014 Atlanta Fed Survey of Business Inflation Expectations For immediate release: October 15, 2014 Contact: Jean Tate, 404-498-8035 or jean.tate@atl.frb.org The year-ahead inflation expectations of businesses were 1.9 percent in October, according to the Federal Reserve Bank of Atlanta’s most recent business inflation expectations (BIE) survey. The survey was conducted October 6–10 with 218 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 1.9 percent over the next 12 months. Inflation uncertainty was virtually unchanged at 2.4 percent. Firms also report that, compared to this time last year, their unit costs are up 1.9 percent. Respondents’ sales levels compared to what they consider “normal” conditions were virtually unchanged, with approximately 56 percent of respondents indicating current sales levels are at or above normal. Profit margins were also virtually unchanged, with roughly 46 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 2.8 percent, on average, unchanged from the July reading. Respondents’ uncertainty (variance) regarding this expectation was 2.4 percent, a slight increase from the July response. Special question: Year-ahead expected change in Core Consumer Price Index This question assessed firms’ expectations regarding the year-ahead change in inflation as measured by the Core Consumer Price Index, which excludes food and energy. Firms’ median year-ahead price change expectation was 1.9 percent. Please see page 3 for a breakdown of the results. For more information and interactive charts, visit the BIE survey site at www.frbatlanta.org/research/inflationproject/bie/. 1 Monthly Questions Year-Ahead Inflation Expectations and Uncertainty (percent) 3.5 3.0 2.5 2.4 2.0 1.9 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 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) 5 0 -5 -10 -15 -20 -25 -30 -35 -40 -45 3.5 3.0 Sales levels Profit margins 2.5 -16 1.9 2.0 1.5 -26 1.0 0.5 Oct-12 Apr-13 Oct-13 Apr-14 0.0 Oct-14 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Source: Atlanta Fed Business Inflation Expectations (BIE) Survey 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 2.8 2.4 2.5 2.0 1.5 Long-term inflation expectations Uncertainty 1.0 0.5 0.0 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Source: Atlanta Fed Business Inflation Expectations (BIE) Survey 2 Jan-14 Apr-14 Jul-14 Oct-14 Special Question Distribution of Year-Ahead Core CPI Expectations percent 20 18 mean: 1.9 percent Percent of responses 16 14 12 10 8 6 4 2 Source: Atlanta Fed Business Inflation Expectations (BIE) Survey 3 5.00 4.75 4.50 4.25 4.00 3.75 3.50 3.25 3.00 2.75 2.50 2.25 2.00 1.75 1.50 1.25 1.00 0.75 0.50 0.25 0.00 -0.25 -0.50 -0.75 -1.00 0 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* August 10% 33% 34% 21% 3% -13 September 9% 32% 38% 18% 3% -14 October 11% 33% 35% 19% 2% -16 How do your current PROFIT MARGINS compare with “normal” times? August Much less Somewhat less About normal Somewhat greater Much greater Diffusion index* 12% 42% 34% 12% 1% -26 September 11% 41% 34% 13% 1% -24 October 13% 40% 32% 14% 0% -26 Up somewhat (1.1% to 3%) Up moderately (3.1% to 5%) Up a lot (>5%) Mean Looking back, how do your UNIT COSTS compare with this time last year? Down (<-1%) About unchanged (-1% to 1%) August 4% 22% 58% 11% 5% 1.8% September 2% 23% 61% 9% 4% 1.8% October 2% 24% 56% 12% 5% 1.9% 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) August 6% 23% 45% 19% 8% 2.0% (2.3%) September 5% 24% 43% 19% 9% 2.1% (2.5%) October 7% 25% 41% 19% 8% 1.9% (2.4%) 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 (196) 4% 13% 36% 30% 17% 2.9% (2.7%) January (196) 3% 12% 32% 28% 23% 3.0% (2.5%) April (189) 4% 12% 38% 26% 20% 2.9% (2.2%) July (209) 4% 14% 37% 28% 15% 2.8% (2.4%) October (216) 4% 15% 45% 26% 11% 2.7% (2.4%) January (208) 4% 20% 43% 21% 11% 2.8% (2.3%) April (181) 3% 16% 42% 30% 8% 2.7% (2.5%) July (223) 4% 19% 35% 26% 14% 2.8% (2.3%) October (208) 4% 16% 39% 25% 15% 2.8% (2.4%) 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