Business inflation expectations stay stable

The year-ahead inflation expectations of businesses are 1.8 percent in March, according to the Federal Reserve Bank of Atlanta’s most recent business inflation expectations (BIE) survey. The survey was conducted March 7–11, with 211 firms responding to questions about their business conditions and inflation outlook. The results are summarized below.

Year-ahead inflation expectations and current conditions

Respondents indicated that, on average, they expect unit costs to rise 1.8 percent over the next 12 months. Inflation uncertainty rose to 2.4 percent. Firms also report that, compared to this time last year, their unit costs are up 1.3 percent. Respondents’ sales levels, compared to what they consider normal conditions, were virtually unchanged, with approximately 60 percent of respondents indicating current sales levels are at or above normal. Profit margins were also stable, with roughly 54 percent of respondents indicating their profit margins are at or above normal.

Quarterly question: Factors influencing price change

On average (weighted by industry share of gross domestic product), respondents indicated their unit sales gap (percentage below normal unit sales) was approximately 3.0 percent below normal compared to 2.8 percent below normal in December. On average, small firms (fewer than 100 employees) reported an increase in their sales gap to 6.4 percent. Midsize firms’ (100–499 employees) sales gap remained unchanged at 1.1 percent, and large firms (500 or more employees) sales gap declined to 1.8 percent below normal.

Special question: Impacts of financial market volatility

This question asked respondents if financial market volatility has materially changed their hiring and/or capital investment planning for 2016. Twenty-one percent of respondents indicated that financial market volatility has materially changed their hiring and/or capital investment planning for 2016.

For more charts and results, see the full summary here. (PDF)

Business Inflation Expectations (BIE) Frequently Asked Questions

1. What is the purpose of the survey?

Inflation expectations are a critical component of the inflation outlook and, ultimately, the achievement of price stability. But our understanding of inflation expectations is limited, in part as a consequence of imperfect measurement. A few years ago, Fed Chairman Ben Bernanke challenged researchers with the following: "Do we need new measures of expectations or new surveys? Information on the price expectations of businesses—who are, after all, the price setters in the first instance—as well as information on nominal wage expectations is particularly scarce." Indeed, our measures of firms' inflation expectations are generally anecdotal. We intend to help fill that void with our Business Inflation Expectations Survey.

2. How is the survey conducted?

Each month, on the Monday during the week of the consumer price index release, panelists receive an e-mail with a secure link to the online survey. The survey is open through 6 p.m. Friday of that week.

3. Who participates in the survey?

Approximately 300 panelists receive the survey each month. Panelists represent businesses of various sizes headquartered within the Sixth District, which encompasses Alabama, Florida, Georgia, and sections of Louisiana, Mississippi, and Tennessee. Panelists range from executives of large corporations to owner-operators of small businesses. The industry composition of the panel roughly reflects the makeup of the national economy. Nevertheless, survey responses are weighted by industry shares of national gross domestic product.

4. How are expectations calculated?

Each panelist is asked to assign a probability to six potential outcomes for unit costs over the upcoming 12 months. The probabilistic mean of these outcomes represents the panelists' year-ahead expectations for unit costs.

5. How is inflation uncertainty calculated?

The same probability data used to construct year-ahead inflation expectations are also used to compute inflation uncertainty. The variance of a panelist's probability data represents that individual's uncertainty about the inflation outlook. The average of these variances represents inflation uncertainty for the panel as a whole.

6. What is the schedule of releases?

The survey period runs from Monday to Friday, typically at midmonth. Survey release dates are scheduled for the following Wednesday, except in cases where the release would conflict with the Federal Open Market Committee (FOMC) blackout period, which begins one week before meetings of the FOMC and lasts until the Friday following the meeting. In such cases, the release is changed to respect the FOMC's communications guidelines.

View the schedule of release dates for the coming year.

7. What is the purpose of "special questions"?

In addition to gauging firms' price-setting environment and year-ahead unit cost expectations, the Atlanta Fed uses the survey to investigate issues of longer-term interest for research and policy. Frequently, we will ask a "special question" designed for this purpose. View the archive of special questions and the responses from our panel.

This story originally appeared on the website for the Federal Reserve Bank of Atlanta.

Tags: Banking & Finance