WASHINGTON - The Atlanta Federal Reserve Bank's monthly survey released Wednesday showed businesses in the Sixth district raised their inflation expectations for 2012 to 1.9%, but there was no change in the measure of their uncertainty regarding the future price increases.

The survey also included a special question which noted that if firms experienced an unanticipated rise in costs, most of it would result in higher consumer prices.

The survey respondents' expectation of a 1.9% increase is up from the 1.7% rise expectation in last month's survey, but businesses' inflation uncertainty was unchanged at 2.8% in August.

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

The survey was conducted August 1317 with 169 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 slightly in August," it said.

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 non-labor costs over the next year rose for the second consecutive month in August. Expectations for labor costs also rose slightly.

"Respondents also anticipate that sales levels and margin adjustments are both likely to have a modest upward influence on the prices they charge in the coming year," the Atlanta Fed said.

The survey included a special question aimed at gauging how firms perceive their pricing power.

The survey participants were presented with a hypothetical, unanticipated rise in unit costs and asked how much of that cost hike they would likely pass along to their customers. The Atlanta Fed said the panel was randomly divided into two groups -- one was given a 2% unit cost increase and the other a 6% unit cost increase.

"According to respondents, most of the unanticipated cost increase would translate to higher prices for customers. On average, firms facing a 2% cost increase said they would pass about 1.3 percentage points on to their customers. For those facing a 6% cost hike, the pass-through, on average, was a relatively comparable 3.8 percentage points," 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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