WASHINGTON — Businesses in the district raised their inflation outlook for the next 12 months, although it appears that their expectations remain well-anchored, according to the Atlanta Federal Reserve Bank's monthly survey released Wednesday.
Respondents in the Sixth Federal Reserve district projected unit costs to increase by 2.0%, up from 1.8% in the July and June surveys.
While there was improvement in sales levels in August compared to last month, profit margins dipped slightly. Half of those surveyed also see the Fed's target interest rate ranging between 0.5% and 1.0% by the end of 2015.
The expectation of a 2.0% increase in unit costs over the next 12 months comes as the U.S. Bureau of Labor Statistics reported that U.S. producer prices were unchanged last month, and were up by barely 0.1% excluding food and energy. PPI is up 2.1% year-over year, while the core index increased by 1.2%. The price of core intermediate goods fell 0.3% in July, the same rate of decline for the price of core raw materials.
The Atlanta Fed survey said businesses' inflation uncertainty dropped to 2.3% in August from 2.5% in July. Firms reported that their unit costs had risen by 1.7% compared to August last year.
The survey was conducted August 5-9 with 212 firms responding to questions about their business conditions, inflation outlook, and potential pricing pressures.
In last month's survey, respondents had noted that the improvement in sales levels reported in June receded somewhat, with 50% saying their current sales levels were at or above normal. Profit margins also declined slightly from the June reading, with 46% of firms saying that their margins are at or above normal.
In the latest survey, however, "Sales levels improved in August, with 53% of respondents now saying their current sales levels are at or above normal compared to 50% in July," the Atlanta Fed said. But, "profit margins declined slightly from the July reading, with just 45% of respondents indicating their profit margins are at or above normal."
In a quarterly question on factors influencing price change, the survey said 65% of respondents expect labor costs to have a moderate to strong upward influence on prices over the coming year while expectations for the influence of non-labor costs have continued to decline since February.
"Eighteen percent of respondents expect productivity to put moderate to strong upward pressure on prices over the coming year while the majority of respondents expect margin adjustments to have little or no influence. Thirty-seven percent of respondents expect sales levels to put moderate to strong upward pressure on prices in the year ahead," it said.
The Atlanta Fed also includes a special question in its survey every quarter regarding factors influencing inflation. This time firms were asked for what range they see the target fed funds rate being in by the end of 2015.
"Fifty percent of respondents indicated that they expect the fed funds rate to be between 0.5% and 1%, while 40 percent of respondents expected it to be greater than 1% but less than 1.5%," the Atlanta Fed said. "The remaining 10% of respondents expect the federal funds rate to be either less than 0.5% (2% of respondents) or greater than 1.5% (8% of respondents) at the end of 2015."
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