Businesses See Inflation Remaining Elevated While Profitability Falls

Inflation expectations at U.S. businesses have come down from the highs of last spring but remain very elevated, data from the Federal Reserve Bank of Atlanta showed on Wednesday.

The outlook for profits, however, is getting significantly worse.

Business inflation expectations were relatively unchanged in the Atlanta Fed’s January survey compared with December, ticking down from an expected 3.1 percent price increase over the next year to a three percent expected increase.

Expectations for inflation have been elevated since President Joe Biden took office. Prior to the Biden administration, the expectation rally significantly above two percent in data that goes back to 2012. The highest level recorded prior to the Biden administration was 2.3 percent.

Nineteen percent of businesses say they current profits are much lower than normal.  An additional thirty percent say profits are somewhat lower. Thirty four percent say they are seeing a normal level of profits. Just 14 percent are experiencing higher than normal profits and three percent are much more profitable than normal.

The diffusion index of profits, which weighs those saying profits are lower than normal against those saying they are higher, fell to minus 25 in January from minus 22 in December.