WASHINGTON - The Atlanta Federal Reserve Bank's monthly survey released Monday showed businesses in the Sixth district maintained their inflation expectations for 2012 at 1.7%, but there was a slight dip in their uncertainty regarding the future price increases.

The survey also noted that, unlike in June, sales and profit margins "deteriorated" in July.

"Inflation uncertainty declined by 0.1 percentage point to 2.8% in July," the Atlanta Fed said.

Firms reported that unit costs had risen 1.5% on an annual basis, down from their assessment of a 1.6% rise in June.

The survey was conducted July 1620 with 160 firms responding to questions about their business conditions, inflation outlook and potential pricing pressures. 

The survey noted businesses are still operating in an environment of below normal sales levels and profit margins -- "both of which deteriorated in July," it said.

Last month's survey, although also commenting that sales and profit margins were below normal, had said both improved in June.

On their inflation outlook, "Firms continue to anticipate little or moderate upward pressure coming from input costs over the next 12 months," the Atlanta Fed said.

The survey said expectations for labor costs over the next year declined for the second consecutive month in July while expectations for non-labor costs rose slightly.

"Just 28% of firms expect moderate or strong upward price influence from sales levels in the coming year, the smallest percentage in the 10-month history of the survey," the Atlanta Fed said.

Respondents also anticipate margin adjustments are likely to have "a modest upward influence" on the prices they charge in the coming year, but that they project productivity may provide "some pricing relief" going forward.

The survey included a special question aimed at measuring firms' inflation expectations and inflation uncertainty over the longer term.

In July, survey respondents projected unit costs to rise by 2.9% a year over the next five to 10 years, down from 3.0% projected in April. Uncertainty about the future path of inflation was 2.9%.

"That figure roughly mirrors the uncertainty (variance) in the distribution of firms' year-ahead inflation predictions," the Atlanta Fed said.

Market News International is a real-time global news service for fixed-income and foreign exchange market professionals. See www.marketnews.com.

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