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 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 – August 2022” is the 64th round of the Survey. These results are based on the responses of around 900 companies.
A. Inflation expectations
One year ahead business inflation expectations in August 2022, as estimated from the mean of individual probability distribution of unit cost increase, have increased by 26 bps to 5.09% from 4.83% reported in July 2022. The declining momentum of business inflation expectations post March 2022 has reversed in this round. The trajectory of one year ahead business inflation expectations is presented.
The uncertainty of business inflation expectations in August 2022, as captured by the square root of the average variance of the individual probability distribution of unit cost increase, has marginally declined to 1.99%.
Respondents were also asked to project one year ahead CPI headline inflation through an additional question using a probability distribution. This question is repeated every alternate month, coinciding with the month of RBI’s bi-monthly monetary policy announcement.
The businesses in August 2022 expect one year ahead CPI headline inflation to be 5.51%, almost same as reported in June 2022, with a relatively low and declining standard deviation of 0.98%.
B. Costs
The cost perceptions data indicates reemergence of cost pressures. Around 59% of the participating firms in the survey perceive significant (over 6%) cost increase, up from 53% reported in the earlier round of the survey.
The percentage of firms perceiving over 10% cost increase y-o-y has also increased. Over 26% of the firms in August 2022 round of the survey perceive that costs have increased very significantly (over 10%) – marginally up from 24% recorded in July 2022.
C. Sales Levels
Firms’ sales expectations have sharply declined. Percentage of firms reporting ‘somewhat less than normal’ sales has increased to 32% in August 2022 from 26% reported in July 2022.
Around 19% of the firms in August 2022 report that sales are ‘about normal’, sharply down from 25 reported in July 2022.
D. Profit Margins
Profit margins expectations have declined. Over 36% of the participating firms in the survey perceive profit margins are ‘somewhat less than normal’ – sharply up from 23% reported in the earlier round of the survey.