CEOs Tone Down Inflation Expectations in Q1: Cleveland Fed

CEOs of firms in the U.S. manufacturing and services sectors have adjusted their expectations for inflation over the next 12 months in the first quarter of 2025, according to the latest Survey of Firms’ Inflation Expectations (SoFIE) by the Federal Reserve of Cleveland.

Business leaders expect the Consumer Price Index to rise by 3.2% over the next 12 months. This marks a decrease from the 3.8% expectation reported in the prior quarter and is a significant drop from the 7.3% peak recorded in the fourth quarter of 2022.

The SoFIE survey captures respondents’ beliefs for expected CPI inflation over the next 12 months. Once per year it asks about beliefs for average CPI inflation over the next five years, CPI inflation over the last 12 months, the Federal Reserve’s inflation target, and the probability that CPI inflation over the next 12 months will exceed 5%.

The sequential decrease in inflation expectations stands in contrast to the trends observed in other surveys, particularly during periods of political and economic uncertainty. For instance, the Atlanta Fed’s monthly survey indicated an increase in business inflation expectations, reflecting concerns that may have been driven by the broader economic environment, including uncertainty surrounding the Trump administration.

Additionally, on the consumer side, inflation expectations surged according to the University of Michigan’s survey, which showed a significant rise in year-ahead implied inflation. This surge in consumer expectations contrasted with the more tempered outlook from businesses, pointing to a potential divergence between how firms and consumers perceive future inflationary pressures.