WASHINGTON — The Atlanta Federal Reserve Bank's monthly survey released Wednesday shows businesses in the Sixth district kept their inflation expectations for the next 12 months unchanged, confirming the view that inflation remains moderate and expectations are well-anchored.
Respondents to the survey projected unit costs to increase by 2.8%, the same estimate as in the June survey. The expectation was for a 2.0% increase in the May survey.
The survey also noted that while there was some improvement in sales levels and profit margins last month, some of those gains were lost in July.
The survey respondents' expectation of a 2.8% increase in unit costs over the next 12 months comes as the U.S. Bureau of Labor Statistics reported that U.S. producer prices rose 0.8% last month, but were up just 0.2% excluding food and energy. The Producer Price Index is up 2.5% year-over-year, while the core index increased by 1.7%. The price of core intermediate goods rose 0.1%, the same rate of increase for the price of core raw materials.
The Atlanta Fed survey said businesses' inflation uncertainty dropped slightly to 2.5% in July from 2.6% in June. Firms reported that their unit costs had risen by 1.8% compared to July last year.
The survey was conducted July 8-12 with 209 firms responding to questions about their business conditions, inflation outlook, and potential pricing pressures.
In last month's survey, respondents had noted "dramatic improvement" in sales levels, with 56% saying their current sales levels were at or above normal — the largest percentage since the series began. Profit margins were also said to have improved, with 49% stating that their margins are at or above normal.
In July, however, "the improvement in sales levels noted by respondents in June have receded somewhat, with 50% now saying their current sales levels are at or above normal," the Atlanta Fed said. Profit margins also declined slightly from the June reading, with 46% of firms now saying that their margins are at or above normal.
In a quarterly question regarding long-term inflation expectations, respondents said they expect unit costs to increase 2.8% per year over the next five to ten years, essentially unchanged from April's expectation of 2.9%.
The Atlanta Fed also includes a special question in its survey every quarter regarding factors influencing inflation. This time around firms were asked about commodity cost pressures, and how they would respond to cost increases or decreases.
"Of those who received the cost increase question, 52% said they would 'mostly increase prices' in response to a 10% raw materials cost increase. Of those who received the cost decrease question, 43% said they would 'mostly increase profit margins' in response to a 10% raw materials cost decrease," the Atlanta Fed said.
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