Eighth District Businesses Report Moderating Inflationary Pressures

To gain a deeper understanding of current economic conditions, the Federal Reserve Bank of St. Louis conducts a quarterly survey of businesses in the Eighth Federal Reserve District.Headquartered in St. Louis, the Eighth Federal Reserve District includes all of Arkansas, southern Illinois, southern Indiana, western Kentucky, northern Mississippi, eastern Missouri and western Tennessee. The results of the survey are regularly reported in the St. Louis Fed’s contribution to the Beige Book report on national and regional economic conditions.The Beige Book is a Federal Reserve System publication about current economic conditions across the 12 Federal Reserve districts. The link connects to the St. Louis Fed’s summary within the Beige Book. With elevated rates of inflation in the economy and widespread interest in factors driving current inflation, this blog post takes a closer look at the special survey results pertaining to firms’ pricing changes and expectations for the remainder of 2024.

In the St. Louis Fed’s surveys conducted in February of 2022, 2023 and 2024,The St. Louis Fed has conducted this survey on a quarterly basis since May 2014. The key results of the survey are reported alongside the Beige Book report in February, May, August and November. In addition to the standard questions, the St. Louis Fed includes a series of questions on timely topics or areas of specific importance. Since 2018, the St. Louis Fed has included a series of questions on pricing decisions each February. The latest survey was conducted Feb. 6-17, 2024; there were 104 responses. firms were asked to provide an estimate of the growth rates of (i) average prices they charged to customers in the previous year and (ii) the average prices they planned to charge in the upcoming year. These results are summarized in the table below, along with comparable results from the national Chief Financial Officer (CFO) Survey as well as economic data from the Bureau of Labor Statistics.The CFO Survey is conducted through a partnership between Duke University’s Fuqua School of Business and the Federal Reserve banks of Richmond and Atlanta. Survey results are not weighted by firm size or sector; the initial sample is intended to reflect the industry mix of the Eighth District economy. The realized data for each period are the latest available as of February 2024, and forecasts are as of February 2022, February 2023 and February 2024.

The table shows that, on average, District firms surveyed this February reported that prices charged to customers increased 2.4% in 2023; this was much slower than the 6.2% price growth reported in 2022 and the 4.8% price growth projected at the beginning of 2023. While the survey average is lower than the numbers reported in The CFO Survey or the CPI for 2023, it is consistent in that actual price increases were less than anticipated and significantly less than in the prior two years.

Looking forward over the next 12 months, all the projections show a trend similar to that of the prior year: Consumer price pressures are expected to continue to subside. However, the magnitude of this decline varies by source, with The CFO Survey indicating greater inflation persistence (projected 4.1% price growth this year, a decrease of 0.2 percentage points from reported growth in 2023) and the St. Louis Fed survey indicating the greatest deceleration (projected 1.5% price growth, a drop of 0.9 percentage points). Professional forecasters, though, anticipate inflation rates will drop considerably but remain elevated, with the consumer price index increasing 2.5% this year. PPI is the only measure expected to increase (1.4%) after declining over 2023.

Passing Costs on to Customers

Despite the Federal Reserve’s progress last year toward 2% inflation and the continued expected moderation in price changes over 2024, there is some evidence that District firms are maintaining some power to pass price increases on to consumers. An elevated share of firms continued to report that higher labor costs will place upward pressure on prices. In the February 2024 survey, 64% of firms indicated that higher labor costs will place upward pressure on prices; this was down slightly from the 2023 survey, but up sharply from the 2018-20 surveys in which the share averaged 45%.

The figure below provides District firms’ responses when asked about their overall ability to increase prices charged to customers in the next three to six months. In the 2022 survey, over 80% of firms reported at least some ability to increase prices charged to customers, a notable increase from the historical average of around 50%. This share is lower in the current survey, but slightly above the share reported in the 2023 survey: 66% percent of firms reported at least some ability to increase prices, and 34% reported no ability to increase prices.

Which of the Following Best Describes Your Ability to Increase Prices Charged to Customers over the Next Three to Six Months?

SOURCE: St. Louis Fed quarterly survey of businesses for the Beige Book.

NOTE: Survey respondents were also asked whether they planned price cuts, but no firms answered in the affirmative from 2019 to 2024.

In a related question, firms were asked how their ability to increase prices charged to consumers changed in the past three to six months. While only 24% responded in the recent survey that their ability improved, this number is essentially unchanged from the 25% reported in 2023.

Notes

1. Headquartered in St. Louis, the Eighth Federal Reserve District includes all of Arkansas, southern Illinois, southern Indiana, western Kentucky, northern Mississippi, eastern Missouri and western Tennessee.
2. The Beige Book is a Federal Reserve System publication about current economic conditions across the 12 Federal Reserve districts. The link connects to the St. Louis Fed’s summary within the Beige Book.
3. The St. Louis Fed has conducted this survey on a quarterly basis since May 2014. The key results of the survey are reported alongside the Beige Book report in February, May, August and November. In addition to the standard questions, the St. Louis Fed includes a series of questions on timely topics or areas of specific importance. Since 2018, the St. Louis Fed has included a series of questions on pricing decisions each February. The latest survey was conducted Feb. 6-17, 2024; there were 104 responses.
4. The CFO Survey is conducted through a partnership between Duke University’s Fuqua School of Business and the Federal Reserve banks of Richmond and Atlanta. Survey results are not weighted by firm size or sector; the initial sample is intended to reflect the industry mix of the Eighth District economy.