The Federal Reserve Bank of New York on Feb. 21 released an analysis by two of its researchers indicating that businesses in the New York-Northern New Jersey region are finding the pace of increases in costs, wages, and prices have all slowed considerably over the past year. Moreover, the analysis says, firms in the region expect cost and price increases, as well as the overall inflation rate, to moderate further in the year ahead.
The analysis was prepared by Jaison R. Abel, head of Urban and Regional Studies in the Research and Statistics Group and Richard Deitz, an economic research advisor in Urban and Regional Studies at the NYFed.
“While inflation remains higher than ideal, much progress has been made. CPI inflation has fallen six percentage points since June 2022, and inflation as measured by the producer price index has come down more than 10 percentage points from its peak. Results reveal that regional firms are seeing the pace of increase in their costs and prices slowing, consistent with patterns in overall inflation.,” the researchers wrote.
The researchers found that while businesses reported an average cost increase of 11% to 13% for 2022, such increases fell to 5% to 6% over the past year. While wage increases in 2022 were about 5.5% for service firms and 6.4% for manufacturers, they slowed to 4.3% for service firms and 5.3% for manufacturers over the past 12 months. Selling price increases fell from an average of 7.3% among service firms and 9.5% among manufacturers in 2022 to an average of 5.3% and 3.2%, respectively, this past year.
The analysis showed that businesses expect further moderation over the next 12 months, with cost increases dropping to around 3.6%, wage increases lowering to 3.8% and price increases dropping to around 3%.
The researchers found that businesses expect the overall inflation rate to be around 3% over the next year, the same as what consumers are expecting according to the NYFed’s latest Survey of Consumer Expectations.
Abel and Dietz noted that while inflation still is above the 2% optimal rate the Federal Reserve is trying to achieve through tis monetary policies, “All in all, our February business surveys point to ongoing moderation in inflationary pressures. This is welcome news: though inflation remains elevated, much progress has been made over the past year and more progress is expected in the year ahead. Still, this is an issue we will be tracking closely.”
