Inflation expectations of businesses jumped higher in August, according to a survey released by the Atlanta Fed Wednesday, casting doubt on the notion that inflation is moderating.
Businesses surveyed by the Atlanta Fed indicated that on average they expect inflation to be three percent over the year ahead, up from 2.8 percent a month ago. That matches the record high set in June and is more than twice the 1.4 level recorded in April.
Approximately one-third of firms expect both labor costs and nonlabor costs to put a significant upward influence on prices.
Asked about the past year, 27 percent of businesses said their costs were up “very significantly,” up from 17 percent in July. Another 27 percent said costs were up “significantly,” a one point decline from July.
Year-over-year unit cost growth increased significantly to 3.3 percent, on average.
Sales levels “compared to normal” remained unchanged slightly into positive territory. Profit margins fell slightly.
Inflation expectations of business are closely watched because they are thought to provide guidance on the potential path of inflation. Many Fed officials regard expectations as something close to a self-fulfilling prophecy when it comes to inflation. If businesses expect that prices will increase at a faster rate, their own purchasing, pricing, and wage decisions will reflect this expectation, making the increase more likely to be realized. In short, the expectation of higher prices can lead to higher prices.
What’s more, rising prices tend to contribute to rising inflation expectations, suggesting that inflation can spiral upward by feeding on itself.