Firms See Long-Run Inflation Running Far Above Fed Target

If you’re inclined to extrapolate from regional Fed surveys, the US economy is still running pretty hot.

The Philly Fed gauge printed 39 for November, data out Thursday showed (figure below). That was well above consensus (24) and exceeded the highest estimate by 11 points.

It’s a volatile series. Again, it’s a matter of how inclined you are to extrapolation.

Virtually every gauge that matters rose — well, except for employment. New orders jumped 17 points, for example, with almost half of firms reporting increases and less than 1% reporting decreases.

The prices indexes are perched at record highs. At 80, the prices paid gauge printed just shy of June’s 80.7, which marked the highest level in 42 years (figure below). 82% of firms reported rising input prices.

The prices received index rose 13 points to the highest since 1974.

Notably, November’s special questions showed firms expect to increase prices by 5.3% and see employee compensation costs rising 4.8% over the next four quarters.

The median forecast for CPI over the next year was 5%, unchanged from August, when the question was last asked. However, firms expect inflation to run at 3.5% over the long-run, up significantly from August (figure below).

So, if you were curious as to how businesses’ views of inflation are evolving, this month’s Philly Fed survey offered a snapshot.

Meanwhile, 268,000 Americans filed for unemployment benefits last week. That was down marginally from an upwardly revised 269,000 the prior week (figure below).

It was the seventh weekly decline. Consensus was looking for a better number.

Obviously, the labor market remains a conundrum.