The Atlanta Fed's macroblog provides commentary on economic topics including monetary policy, macroeconomic developments, financial issues and Southeast regional trends.
- BLS Handbook of Methods
- Bureau of Economic Analysis
- Bureau of Labor Statistics
- Congressional Budget Office
- Economic Data - FRED® II, St. Louis Fed
- Office of Management and Budget
- Statistics: Releases and Historical Data, Board of Governors
- U.S. Census Bureau Economic Programs
- White House Economic Statistics Briefing Room
February 22, 2012
Weighing the risks to the inflation outlook: Two views
The Federal Reserve Bank of Atlanta's Survey of Business Inflation Expectations released earlier today showed a continuation of rather modest expectations for unit cost pressures over the coming 12 months. In February, our panel of firms reported a 1.9 percent average expected rise in unit costs over the coming year, still within the very narrow 1.8 percent to 2 percent range the group has been reporting over the past five months.
That's the good news. Now for some (potentially) bad news. In a special question this month, we asked the panel to weigh in on their expectations for annual unit cost increases over the longer term—specifically, the next 5 to 10 years. The group's expectation was a percentage point higher, at 2.9 percent.
The reason for the higher expectation for unit costs over the longer term can be seen in the following chart, which compares how the group assigns probabilities to unit cost changes over the next 12 months to how they judge these probabilities over the longer term.
In both instances, the Atlanta Fed's Business Inflation Expectations panel of firms puts the greatest likelihood that unit costs will rise in the 1 percent to 3 percent range—in a range that matches the Federal Open Market Committee's longer-term inflation objective.
But how does the group assess the risks around that increase? Over the short term, the panel sees a higher likelihood that unit costs may fall short of the 1 percent to 3 percent range. Specifically, the group sees a 36 percent chance that unit costs will rise less than 1 percent compared against only a 26 percent chance that they will rise above 3 percent. Yet when sizing up the next 5 to 10 years, the group sees only a 15 percent chance that unit costs will rise less than 1 percent per year compared with a 46 percent chance that costs will rise by more than 3 percent.
What our panel of firms appears to be telling us is that the risks to the inflation outlook—in both the near term and longer term—aren't particularly balanced. In the near term, they weigh the inflation risks more heavily to the downside. But looking over the next 5 to 10 years, the panel sees the inflation risks leaning decidedly to the upside.
What we can't tell from these data is whether the panel's assessment of the inflation risks is different today than it was before. After all, this is the first time we've asked the question, but you can bet it won't be the last.
Mike Bryan, vice president and senior economist,
Laurel Graefe, economic policy analysis specialist, and
Nicholas Parker, economic research analyst, all with the Atlanta Fed
TrackBack URL for this entry:
Listed below are links to blogs that reference Weighing the risks to the inflation outlook: Two views:
- A Closer Look at Changes in the Labor Market
- Should We Be Concerned about Declines in Labor Force Growth?
- Labor Report Silver Lining? ZPOP Ratio Continued to Rise in September
- The ZPOP Ratio: A Simple Take on a Complicated Labor Market
- What Do U.S. Businesses Know that New Zealand Businesses Don't? A Lot (Apparently).
- 5-Year Deflation Probability Moves Off Zero
- Should I Stay or Should I Go Now?
- No Wage Change?
- Getting to the Core of Goods and Services Prices
- Different Strokes for Different Folks
- November 2015
- October 2015
- September 2015
- August 2015
- July 2015
- June 2015
- May 2015
- April 2015
- March 2015
- February 2015
- Business Cycles
- Business Inflation Expectations
- Capital and Investment
- Capital Markets
- Data Releases
- Economic conditions
- Economic Growth and Development
- Exchange Rates and the Dollar
- Fed Funds Futures
- Federal Debt and Deficits
- Federal Reserve and Monetary Policy
- Financial System
- Fiscal Policy
- Health Care
- Inflation Expectations
- Interest Rates
- Labor Markets
- Latin America/South America
- Monetary Policy
- Money Markets
- Real Estate
- Saving, Capital, and Investment
- Small Business
- Social Security
- This, That, and the Other
- Trade Deficit
- Wage Growth