Businesses’ expectations for their own-price inflation declined in February. Over the next year, businesses expected their output prices to increase by an average 5.4%, down 0.4% from the previous month. The three-month average fell from 5.8% to 5.6%. Note that the DMP covers own prices from firms across the whole economy, not just consumer-facing firms.
In February, CPI inflation expectations also fell. DMP members’ one-year ahead CPI inflation expectations decreased to 5.9%, down from 6.4% in January. Three-year ahead CPI inflation expectations also declined to 3.4% in February, from 3.7% in January.
Cost pressures continued to soften in February. Businesses reported that unit costs had grown by 9.8% in the year to February, down from 9.9% in January. Unit costs were expected to be to grow by a further 7.0% over the coming year, down from 8.0% in January.
Expected year-ahead wage growth remained at 5.7% in February. Realised annual wage growth ticked back up to 6.6% in February.
Recruitment difficulties started to rise again in February, with 45% of firms were finding recruitment ‘much harder’ than usual. That represents an increase from 35% in January. Supply chain disruptions were also reported to have ticked up in February. Around 11% of firms’ non-labour inputs were disrupted in February, up from 9% in January.
In spite of ongoing recruitment challenges, realised employment growth remained strong at 4.3% in the three months to February, although the single month February data were weaker at 3.3%. Moreover, expectations for year-ahead employment growth rose in February, with the single month data rising from 1.2% to 2.7%, and the three-month average increasing from 1.5% to 1.9%.
Overall business uncertainty continued to decline in February, with 53% of firms reporting that the overall level of uncertainty facing their business was high or very high, down from 57% last month. Uncertainty around the outlook for businesses’ expectations for their own-price growth also fell back, although it remains at historically high levels.