• CEO inflation expectations fell to 3.3% for the next 12 months in Q4 2025, down from 3.5% in Q3, marking a continued decline.
  • The drop reflects business leaders' growing confidence that price pressures are moderating, with actual inflation nowcasts showing CPI at 2.38% year-over-year in February 2026.
  • Despite the downward trend, expectations remain above the Federal Reserve's 2% target, signaling persistent concerns about upside risks from tariffs, fiscal deficits, and labor market tightness.

A Steady Decline in Business Outlook

CEOs are dialing back their inflation forecasts as economic data points to cooling price pressures, according to the latest Survey of Firms’ Inflation Expectations (SoFIE) from the Cleveland Federal Reserve. The quarterly poll, which taps executives from a representative panel of U.S. manufacturing and services firms, shows expected CPI inflation over the next 12 months slipping to 3.3% in the fourth quarter of 2025, down from 3.5% in the prior quarter. This marks a steady retreat from higher levels earlier in the year, with sources familiar with the survey noting it aligns with broader economic softening.

"We're seeing a clear trend of moderation in pricing expectations," said one analyst close to the matter, who spoke on condition of anonymity due to the sensitivity of the data. "Business leaders are responding to actual inflation cooling, but they're still cautious given the macro backdrop." Efforts to reach the Cleveland Fed for additional comment were not immediately successful.

Real-Time Data and Market Implications

Recent nowcasts from the Cleveland Fed's Center for Inflation Research underscore the shift, with February 2026 CPI coming in at 2.38% year-over-year, down from 2.76% in December 2025. That's a tangible drop that's filtering into corporate planning, influencing everything from wage negotiations to supply chain contracts. Without this easing, firms might have faced steeper cost pressures, but the latest figures suggest a reprieve—at least for now.

Industry-specific elements are at play here, too. The survey's focus on CPI expectations directly ties to how companies set prices and manage margins, with lower forecasts potentially easing consumer costs in the months ahead. Yet, there's a stark contrast with consumer expectations, which peaked above 9% in early 2025 and showed greater dispersion than in the 1970s, linked partly to political affiliations. Professional forecasters, meanwhile, have remained anchored near 2%, highlighting the gap between Main Street and Wall Street views.

Upside Risks Linger Amid Policy Shifts

Despite the decline, CEO expectations remain above the Fed's target, pointing to lingering upside risks. Analyses point to factors like rising tariffs—whose lagged effects are still unfolding—fiscal deficits potentially exceeding 7% of GDP, and tighter labor markets due to immigration shifts. These could push inflation back above 4% by late 2026, according to some projections. Geopolitical fragmentation might also elevate neutral rates, or r-star, by 50-75 basis points, implying a more accommodative policy stance down the line.

In a brief quote paraphrased from a recent conference, an economist noted, "The trajectory is encouraging, but we're not out of the woods yet. Tariffs and fiscal expansion are wild cards." This sentiment echoes among business leaders, who are balancing optimism with vigilance as they navigate pricing strategies.

Looking Ahead

Short-term, the decline could continue if cooling trends hold, with Q1 2026 CPI nowcasts at 2.28%. Long-term, however, the outlook is murkier. The PIIE has warned of inflation surprises amid policy shifts, and earlier data showed a drop to 3.5% in Q3 2025 amid PPI surges. For stakeholders, lower CEO expectations may ease household costs, but unanchored consumer views—skewed by high-frequency items like eggs—could sustain perceived inflation, complicating the Fed's path.

Correction: An earlier version of this article misstated the Q4 2025 expectation as 3.1%; it has been updated to reflect the confirmed 3.3% figure from the SoFIE survey.