The Atlanta Fed’s Business Inflation Expectations (BIE) median measure cooled to 2.0% in January, down from 2.4% in December and reached its lowest since 2.0% in May 2018. The milder reading probably partially reflects the rapid declines in energy prices that appears to be more than a temporary development. It also indicates that businesses are expecting less vigorous economic activity to drive prices upward. Conditions are still for healthy sales and slightly higher profit margins, and unit cost increases about unchanged from a year ago.
The change in the BIE was more than is usually seen month-to-month, although the large and rapid decline in energy commodities in November and December is enough to account for it. Nonetheless, if the inflation expectations in the preliminary University of Michigan Consumer Sentiment Index report for January at 10:00 ET on Friday, January 18 points to a similar decline, Fed policymakers will have another reason to support being patient in removing further interest rate accommodation.
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