Inflationary pressures jumped to levels not seen since the high inflation years of the early 1980s, the Philadelphia Federal Reserve’s survey of manufacturing businesses showed Thursday.
The Philly Fed said the prices-paid component of its monthly manufacturing index rose 7.7 points to 76.8 in May, a big jump for the index and the highest level since March 1980.
And businesses are succeeded in passing along higher costs. The prices-received index rose 6.5 points to 41, the highest level since 1981.
What’s more, businesses have adopted an inflationary mentality, expecting to have the ability to keep raising prices.
The Philly Fed questionnaire asked firms to forecast where there own prices and costs would go. The median forecast was for an increase of 5.0 percent, a big jump from 3.0 percent when the question was last asked in February and more than twice the 2.3 percent price change over the past year.
Companies expect employee compensation costs to rise 4.0 percent over the next four quarters, an increase from 3.0 percent in the previous quarter.
“When asked about the rate of inflation for U.S. consumers over the next year, the firms’ median forecast was 4.0 percent, an increase from 3.0 percent in the previous quarter,” the Philly Fed said. “The firms’ median forecast for the long-run (10-year average) inflation rate was 3.0 percent, the same as in February.”
The survey’s business activity index fell to 31.5 in May from a nearly 50-year high of 50.2 in the prior month. Economists had forecast a milder decline to 45.
The Measure of on new orders fell 3.5 points to 32.5 in May. The shipments index fell 4.3 points to 25.3. The measure on the six-month business outlook fell 13.9 points to 52.7, the regional bank said.
The index of the number of employees fell 11.5 points to 19.3, likely reflective of the difficulty businesses have reported attracting workers.
Unfilled orders surged to 40.4 from 27.2 in the prior month, which could indicate supply-chain challenges.