AUGUST 2004

Troubling Signs of Inflation

Inflation hawks will take no comfort in the latest survey results from the National Federation of Independent Business (NFIB). In its June survey of 485 small businesses nationwide, the association found the most aggressive price increases seen since the late 1980s.

In his survey report, NFIB chief economist William Dunkelberg explains that a strengthening economy has given firms the ability to raise prices. That is to say, price cuts are no longer necessary to attract new customers or retain old ones. Nearly every industry segment is experiencing price hikes, with the largest increases in manufacturing and financial services. Dunkelberg makes another telling observation: his survey shows that one reason firm profits have been strong recently is because for the first time since the 1980s the percent of firms raising prices has exceeded the percent of firms raising worker wages and compensation.