IIM Ahmedabad: Business Inflation Expectations Survey BIES May 2022

The Business Inflation Expectations Survey (BIES) provides ways to examine the amount of slack in the economy by polling a panel of business leaders about their inflation expectations in the short and medium-term. This monthly survey asks questions about year-ahead cost expectations and the factors influencing price changes, such as profit, sales levels, etc. The survey is unique in that it goes straight to businesses - the price setters - rather than to consumers or households, to understand their expectations of the price level changes. One major advantage of BIES is that one can get a  probabilistic assessment of inflation expectations and thus get a measure of uncertainty. It also provides an indirect assessment of the overall demand condition of the economy. Results of this Survey are,  therefore, useful in understanding the inflation expectations of businesses and complement other macro data required for policy making. With this objective, the BIES is conducted monthly at the Misra Centre for Financial Markets and Economy, IIMA. A copy of the questionnaire is annexed.  

Companies are selected primarily from the manufacturing sector. Starting in May 2017, the “BIES - May 2022” is the 61st round of the Survey. These results are based on the responses of around 1000  companies. 

A. Inflation expectations 

• One year ahead business inflation expectations in May 2022, as estimated from the mean of the individual probability distribution of unit cost increase, have declined sharply by 44 bps to  5.58% from 6.02% reported in April 2022. There are early signs of business inflation expectations tapering off, after remaining close to or above 6% during January – April 2022.  The trajectory of one year ahead business inflation expectations is presented in Chart 1.  

• The uncertainty of business inflation expectations in May 2022, as captured by the square root of the average variance of the individual probability distribution of unit cost increase, has remained around 2.1%, the same as reported during February-April 2022. 

B. Costs:

The cost perceptions data indicates the persistence of high-cost pressures. Over 66% of the participating firms in the survey perceive significant (over 6%) cost increases for the consecutive four months (Chart 2).

However, the percentage of firms perceiving over 10% cost increase y-o-y has been slowly declining. Over 34% of the firms in the May 2022 round of the survey perceive those costs have increased very significantly (over 10%) – down from 39% recorded in February 2022.

C. Sales Levels:

Firms’ sales expectations have moderated. Percentage of firms reporting ‘somewhat less than normal’ sales has increased sharply to 34% in May 2022 from 27% reported in April 2022. 

Around 23% of the firms in May 2022 report that sales are ‘about normal’, down from 28% reported in April 2022 (Chart 3) 1.

D. Profit Margins

For the past five consecutive rounds, around 4/5 th of the firms in the sample reported ‘much less than or somewhat less than normal’ profit (Chart 4). 
Profit expectations remained muted due to high cost increases and subdued sales expectations.