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 was introduced at IIMA from May 2017.
The questionnaire of BIES is finalized based on the detailed feedback received from the industry, academicians and policy makers. A copy of the questionnaire is annexed.
Companies are selected primarily from the manufacturing sector. The “BIES – September 2021” is the 53 rd round of the Survey. These results are based on the responses of around 1300 companies.
A. Inflation expectations
One year ahead business inflation expectations in August 2021, as estimated from the mean of an individual probability distribution of unit cost increase, have increased sharply by 53 basis points to 5.75% from 5.22% reported in September 2021.
The uncertainty of business inflation expectations in September 2021, as captured by the square root of the average variance of the individual probability distribution of unit cost increase, has also increased sharply to 2.2% from around 1.9% reported during July-August 2021.
B. Costs
The cost perceptions data indicates further hardening of cost pressures. Over 59% of the firms in this round of the survey perceive significant (over 6%) cost increase, as against 55% reported in the earlier round
Around 35% of the firms perceive that costs have increased very significantly (over 10%) – further up from the responses received earlier in August 2021. For the first time, over 1/3 rd of the firms reported more than 10% cost increase.
C. Sales Levels
Sales expectations have further improved. Around 33% of the firms in September 2021 reported that sales are ‘much less than normal, as compared to 36% reported in August 2021 Note that the instance of only 1/3 rd of the firms expecting ‘much less than normal’ was reported last in May 2019.
D. Profit Margins
Around 48% of the firms in the sample in September 2021 report ‘much less than normal’ profit – up from 44% reported in August 2021
About 15% of the firms now report that profit expectations of ‘about normal’ – down from 17% reported in August 2021.
Overall, improvement in sales is overshadowed by the cost increase. As a result, profit expectations have remained subdued.