Company chief financial officers expect higher inflation this year and next, and have begun to cite rising interest rates as a top concern, according to a new US Federal Reserve survey.
The quarterly poll of around 500 firms showed finance chiefs expected to increase prices an average of 5.3% this year, up from the 4.6% increase seen in the second quarter and 3.6% seen at the start of the year.
Price increases next year were seen averaging 4.5% in the most recent survey, versus 4.1% seen in the second quarter survey and 3.6% at the start of the year.
The jump in pricing expectations comes even as CFOs focused less on inflation in their list of top concerns.
Instead “monetary policy” was the most cited issue, with around 20% of firms putting it at the top of their list of concerns, compared to less than 15% in the last survey, a corollary to their own pricing plans as the Federal Reserve shifted towards rate increases to try to lower inflation they worry is becoming broader and more persistent.
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The survey was conducted August 17 to September 4 across a national sample of firms of all sizes. That was before the Fed hiked its policy rate by a quarter of a percentage point last week, but as Fed policy debate shifted towards likely rate hikes and investors braced for higher borrowing costs.
Overall optimism about the economy among financial officers remained strong, but financing concerns have begun to dim the outlook among smaller businesses, said Sonya Waddell, a vice president and economist at the Richmond Fed, which conducts the CFO survey along with the Atlanta Fed and Duke University’s Fuqua School of Business.
“Where there are challenges they are most pronounced for small and financially constrained firms,” Waddell said in a press release accompanying the latest survey. About a fifth of small firms said financing constraints were holding back expansion plans or making it hard to cover costs, and firms overall anticipate less capital investment in the next six months compared to the outlook six months ago.
While Fed officials say they do not feel current financial conditions are restrictive, among those not planning to invest about 42% cited unfavorable financing or a need to preserve cash as the reason, up from 32% six months ago.