Pantheon Macroeconomics

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10th Dec 2020 11:04News

Question of the week: What do small businesses tell us about inflation next year?

A: The National Federation of Small Businesses asks its members about their selling prices each month, and the proportion of firms reporting higher prices has rocketed.The NFIB’s prices index is heavily influenced by movements in gasoline prices, but that effect can be stripped out of the data.  The resulting near-vertical increase since the April low is consistent with core CPI inflation rebounding to about 2¾% by the middle of next year, from 1.6% now.  That's not hugely aggressive number, given the base effects which will lift core CPI inflation in the second quarter of next year.  But a further significant increase in NFIB selling prices, pointing to core inflation rising above 3%, would be a different story.  

We're inclined to think that at the current point in the path of Covid infections, it's too early for most small businesses to be concentrating on the extent to which they might be able to raise prices in the post-Covid world.  That said, retail sales of goods are now running above the pre-Covid level, and are above the level we would have expected to see if Covid hadn't happened, so at least some retailers might now be seeking to test the waters with higher prices.  Note that the NFIB's commentary, accompanying both the October and November surveys, specifically cited rising prices in the retail sector.

Ian Shephedson

Chief U.S. Economist


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