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Business Inflation Expectations Survey (BIES) – October 2022

by TLAteam December 6, 2022December 6, 2022
written by TLAteam December 6, 2022December 6, 2022
Business Inflation Expectations Survey (BIES) – October 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 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.

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Companies are selected primarily from the manufacturing sector. Starting in May 2017, the “BIES – October 2022” is the 66th round of the Survey. These results are based on the responses of over 100 companies.

A. Inflation expectations

  • One year ahead business inflation expectations, as estimated from the mean of individual probability distribution of unit cost increase, have remained unchanged around 4.76% during September-October 2022. The trajectory of one year ahead business inflation expectations.
  • The uncertainty of business inflation expectations in October 2022, as captured by the square root of the average variance of the individual probability distribution of unit cost increase, has further increased to 2.16%.
  • 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.
  • Businesses in October 2022 expect one year ahead CPI headline inflation to be lower at 5.32%, as against 5.51% reported in August 2022, with a relatively low standard deviation of 1.06%.

B. Costs

  • The cost perceptions data clearly indicates moderation in cost pressures.
  • The percentage of firms perceiving over 10% cost increase y-o-y has further declined. Over 19% of the firms in October 2022 round of the survey perceive that costs have increased very significantly (over 10%) – down from 21% recorded in September 2022.

C. Sales Levels

  • Firms’ sales expectations are seen to have subdued. Percentage of firms reporting ‘somewhat less than normal’ sales has sharply increased to 33% in October 2022, from 24% reported in September 2022.
  • Around 25% of the firms in October 2022 report that sales are ‘about normal’, down from 27% reported in September 2022.

D. Profit Margins

  • With moderation in cost pressures, profit margins expectations have improved sharply. Over 26% of the participating firms in October 2022 perceive profit margins are ‘somewhat or much greater than normal’ – significantly up from 5% reported in September 2022.
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