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 – December 2022” is the 68th 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 declined sharply to 4.19% in December 2022, from 4.70% reported in November 2022.The trajectory of one year ahead business inflation expectations is presented.
- The uncertainty of business inflation expectations in December 2022, as captured by the square root of the average variance of the individual probability distribution of unit cost increase, has remained around 2%.
- 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 December 2022 expect one year ahead CPI headline inflation to be lower at 4.91%, as against 5.32% reported in October 2022, with a relatively low standard deviation of 0.96%.
B. Costs
- The distribution of responses on y-o-y cost increase during September-December 2022 indicates the mode to be stabilizing around 5-6%.
- The percentage of firms perceiving over 10% cost increase y-o-y has further declined. Over 12% of the firms in December 2022 round of the survey perceive that costs have increased very significantly (over 10%) – down from 17% recorded in November 2022.
C. Sales Levels
- Firms’ sales expectations have improved. Percentage of firms reporting ‘much less than normal’ sales have declined to 25% in December 2022, from33%reported in November 2022.
- Around 30% of the firms in December 2022 report that sales are ‘about normal’, sharply up from 22% reported in November 2022.
D. Profit Margins
- There are early signs of improvement in profit margins expectations.
- Over 31% of the participating firms in December 2022 perceive profit margins are ‘much less than normal’ – down from 40% reported in November 2022.