The year-ahead inflation expectations of businesses remained unchanged at 1.8 percent in July, according to the Federal Reserve Bank of Atlanta’s most recent business inflation expectations (BIE) survey. The survey was conducted July 8–12 with 209 firms responding to questions about their business conditions, inflation outlook, and potential pricing pressures. The results are summarized below.

Year-ahead inflation expectations and current conditions

Respondents indicate that, on average, they expect unit costs to rise 1.8 percent over the next 12 months, roughly in line with the recent year-ahead inflation forecasts of private economists. Inflation uncertainty was roughly unchanged at 2.5 percent in July from 2.6 percent in June. Firms also report that, compared to this time last year, their unit costs are up 1.8 percent. The improvement in sales levels noted by respondents in June have receded somewhat, with 50 percent now saying their current sales levels are at or above normal compared to 56 percent in June. Profit margins also declined slightly from the June reading, with 46 percent of firms stating that their margins are at or above normal, compared to 49 percent in June.

Quarterly question: Long-term inflation expectations

Over the long term, that is, per year over the next five to 10 years, respondents expect unit costs to increase 2.8 percent, on average, virtually unchanged from the April reading of 2.9 percent. Respondents’ uncertainty (variance) regarding this expectation, at 2.4 percent, remains low in comparison to prior measures.

Special question: Response to increase/decrease in raw materials costs

The special question focused on commodity cost pressures. Half our panel was asked how they would respond to “a 10 percent increase in raw materials costs” and the other half how they would respond to “a 10 percent decrease in raw materials costs.”

Of those who received the cost increase question, 52 percent said they would “mostly increase prices” in response to a 10 percent raw materials cost increase. Of those who received the cost decrease question, 43 percent said they would “mostly increase profit margins” in response to a 10 percent raw materials cost decrease.