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.
Companies are selected primarily from the manufacturing sector. Starting in May 2017, the “BIES – November 2022” is the 67th round of the Survey. These results are based on the responses of around 1000 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 steady around 4.70% during September-November 2022.
- The uncertainty of business inflation expectations in November 2022, as captured by the square root of the average variance of the individual probability distribution of unit cost increase,hasremained around 2.10%.
B. Costs
- The distribution of responses on y-o-y cost increaseduring September-November 2022 indicates the modeto be stabilizing around 5-6%.
- The percentage of firms perceiving over 10% cost increase y-o-y hasfurther declined. Over 17% of the firms in November 2022 round of the survey perceive that costs have increased very significantly (over 10%) – downfrom 19% recorded in October 2022.
C. Sales Levels
- Firms’ sales expectations have remained subdued. Percentage of firms reporting ‘much less than normal’sales has sharply increased to 33% in November 2022, from 26%reported in October 2022.
- Around 22% of the firms in November 2022 report that sales are ‘aboutnormal’, further down from 25% reported in October2022.
D. Profit Margins
- With moderation in sales expectations, profit margins expectations have deteriorated sharply.
- Over 40% of the participating firms in November 2022 perceive profit margins are ‘much less than normal’ – significantly up from 30% reported in October 2022(Chart 4).