Inflation seemed to come out of nowhere, one minute inflation is 1% and changing, and then it rose to 40-year highs, it looked like a repeat of the 1970s and early 1980s. Main Street companies gave a clear signal of the price hike ahead in the second quarter of 2020, as the percentage of companies reporting higher selling prices rose from 9% to 70% in the second quarter of 2022, an increase in price increases seen since the end of the year. of the 1970s and early 1980s has not been observed when CPI inflation reached more than 12%.
NFIB Firms Reporting or Planning to Increase Prices
Actual and Forecast CPI
A regression of CPI inflation (quarterly) on NFIB indicators shows how accurately small business owners have anticipated rising inflation. Predictors in the model include:
- The percentage that reports an increase in sales prices in the previous quarter
- The percentage that increases prices by 5% or more in the previous quarter
- The percentage who plan to raise prices a quarter earlier
NFIB surveys are conducted in the first quarter of each month. For example, the percentage of price increases in January would be used to forecast inflation in the second quarter, along with the percentage that plans to increase future prices in January.[1] As Chart 2 shows, the actions of small business owners during this period are excellent predictors of the inflation rate in the next quarter, which will be reported in the following quarter. If you want to know where inflation will be in the next quarter, you can wait for the quarter to be over and the Consumer Price Index (CPI) to be released, or you can use the NFIB data to get a very reliable solution for the level and direction of inflation.
The July NFIB survey suggests that CPI inflation could be around 11% based on the number of companies increasing selling prices, especially by 5% or more. Gas prices will not continue to fall as they have for the past month, housing costs are rising, food costs are still rising and labor costs are still rising, so inflationary pressures will remain a challenge. The Federal Reserve will most likely raise interest rates another 3/4 of a point, and the housing market is slowing significantly. But it will take time for this weakness to permeate the economy and slow general spending, which will ease inflationary pressures.
[1] Inflation forecasted = -1.84 -0.02* Increased + 0.25* Increased >5% + 0.15 * Plan to increase,
R2 = .62..There is no trend in the data series.
