–59% Predict Moderate or Strong Upward Pressure From Labor

By Brai Odion-Esene

WASHINGTON (MNI) – The Atlanta Federal Reserve Bank said businesses
in the Sixth district again revised up their inflation expectations for
2012 to 2.0% compared to 1.9% in February, according to the monthly
survey released Wednesday.

In addition, 59% of respondents expect labor costs to exert either
a moderate or strong upward pressure on prices over the next 12 months,
the highest ever recorded by the survey.

The expectation of a 2.0% uptick in inflation is measured by the
“rise firms anticipate in their year-ahead unit costs,” the Atlanta Fed
said.

Firms also reported that their unit costs increased 1.8% compared
to this time last year, unchanged from their assessment in February.

The survey was conducted March 12-16 with 162 firms responding to
questions about their business conditions, inflation outlook and
potential pricing pressures.

The survey said respondents indicated that sales levels and profit
margins, though still below normal, “have begun to improve.”

“Looking forward, firms expect continued, though modest,
improvement in sales and margins over the next year,” the Atlanta Fed
said.

It added that businesses’ expectations for labor costs rose in
March, with 59% of respondents — “the highest percentage in the
six-month history of the survey” — predicting a moderate or strong
upward price influence coming from labor over the next 12 months.

On the other hand, “Firms anticipate that nonlabor costs will put
little or moderate upward pressure on prices in the year ahead, though
that assessment declined slightly in March,” the Atlanta Fed said.

The survey also included a special question intended to assess how
various influences ordinarily factor into firms’ pricing decisions.

It noted that all industry groups rated competitive pressure and
demand as especially important in pricing decisions. Materials and
transportation costs play a greater role for retail and manufacturing
firms whereas firms in other industries consider labor firms, slightly
more influential than manufacturers and retailers.

** MNI Washington Bureau: 202-371-2121 **

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