The inflation expectations of businesses continued to climb in May, adding to concerns that the recent energy shock-driven rise could prove more pervasive and persistent than hoped.
The Federal Reserve Bank of Atlanta’s monthly survey of businesses in the American southeast found that costs are expected to climb 2.4 percent over the next twelve months, up from 2.3 percent last month. This is the third consecutive monthly increase since expectations fell to just under two percent in February, the lowest since December 2020.
Inflation expectations remain far below their December 2022 peak of 3.8 percent but are now once again significantly above their long-term pre-pandemic average of two percent.
Businesses reported an average increase of 3.7 percent in their own prices over the past 12 months. (median 3.0 percent) price increase over the past 12 months. This is a question the Atlanta Fed’s survey asks every three months and is basically unchanged from the first quarter of this year. The median reported price change was three percent.
Looking ahead, businesses said they expected to raise prices by an average of 4.1 percent over the next 12 months. The median expectation was three percent. That was up a full percentage point from the expectation recorded in the first quarter.
Business expectations of inflation are closely watched because they can often be better predictors of future inflation than consumer expectations. Still, business expectations do not always become reality, as economic conditions can be unpredictable. The rise of expected inflation, however, is likely to firm up the conviction that the Fed is unlikely to cut interest rates this year.
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