No Sign of Transitory: Business Expectations for Inflation Climb to Fresh High

American businesses’ expectations of future inflation hit a record high last month, according to a report released Wednesday from the Federal Reserve Bank of Atlanta, potentially undermining confidence among Fed officials that inflation pressures will ease over time.

The Atlanta Fed’s survey of U.S. businesses found that inflation was expected to be runing at a rate of 3.1 percent 12-months from now, one-tenth of a point higher than the previous month’s survey. This is the highest expected rate of inflation in data running back to 2012.

The long-term average for this series is 2 percent.

In a possible warning that the U.S. could face low growth and high inflation, expected sales levels “compared to normal” decreased to a neutral level.

Long-term expectations, over the next decade, remained at three percent, also a record high and three-tenths higher than the long term average prior to this year.

The data on the expectations of businesses aligns with consumer views of inflation. On Monday, the Federal Reserve Bank of New York said that in August U.S. consumers saw inflation a year from now at 5.2 percent, up from expectations of 4.9 percent last month. Three years from now, consumers anticipate inflation will be at four percent, up from 3.7 percent in July. Those were both record highs in data going back to 2013.

Fed officials, including chair Jerome Powell, continue to argue that they believe inflation will prove transitory and price pressures will ebb over time.  Several Fed officials, however, have said they believe the Fed should begin reducing its bond purchases this year, indicating that the central bank has not been put off the taper plan by the weak August jobs number.

Some Fed officials have begun openly saying they no longer see inflation as transitory.

Cleveland Fed President Loretta Mester said last week that she no longer see that as the best description of inflationary forces in the economy. Instead, the price increases are likely to persist for longer than policymakers thought in the first half of this year.

“My own modal forecast is for inflation to remain high this year and then to begin to move back down next year; however, I see upside risks to this forecast,” Mester said.