BPEA | 1981 No. 1

Price Expectations of Business Firms

Frank de Leeuw and
Frank de Leeuw Bureau of Economic Analysis
Michael J. McKelvey
Michael J. McKelvey Bureau of Economic Analysis

1981, No. 1

PRICE EXPECTATIONS by business are an integral part of the process by
which inflation maintains or alters its momentum. Empirical studies of
price expectations in the United States, however, have relied mainly on
surveys of professional forecasters or of households. Useful though these
studies are, the absence of studies of price expectations by businessmen
has been a serious omission.
Since 1970 the year-end surveys of business expenditures on plant and
equipment conducted by the Bureau of Economic Analysis have included
a question about price expectations. The question is asked separately for
prices of capital goods purchased and prices of goods and services sold.
The question in the survey conducted at the end of 1980, essentially the
same as in earlier years, was: “What are your best estimates of average
price changes from 1979 to 1980 and from 1980 to 1981? (Approximations
are acceptable.)” The survey included a box for entering perceptions
of the past (1979-80) price change and one for entering expectations for
the future (1980-81) change (both in percent). The responses to the
question on capital goods prices for major industry aggregates have been
published regularly in January issues of Survey of Current Business.