Business Inflation Expectations Survey (BIES) – March 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. 

Companies are selected primarily from the manufacturing sector. Starting in May 2017, the “BIES - March 2022” is the 59th round of the Survey. These results are based on the responses of around 1100 companies. 

A. Inflation expectations

One year ahead business inflation expectations in March 2022, as estimated from the mean of individual probability distribution of unit cost increase, have further increased marginally to 6.12% from 6.09% in February 2022. The business inflation expectations remained above 6% for the second consecutive month. The trajectory of one year ahead business inflation expectations is presented in Chart 1.   

The uncertainty of business inflation expectations in March 2022, as captured by the square root of the average variance of the individual probability distribution of unit cost increase, has remained around 2.1%, same as reported in February 2022.

B. Costs

The cost perceptions data indicates persistence of high cost pressures.  Around 70% of the participating firms in the survey perceive significant (over 6%) cost increase for the consecutive two months (Chart 2). 

Over 39% of the firms in March 2022 round of the survey perceive that costs have increased very significantly (over 10%). For the consecutive two rounds, around 2/5th of the firms reported more than 10% cost increase. 

C. Sales Levels

Firms’ sales expectations in March 2022 have improved. Percentage of firms reporting ‘much less than normal’ sales has declined to 29% from around 36-37% reported in the last four rounds.

About 1/4th of the firms in March 2022 report that sales are ‘about normal’ (Chart 3).

D. Profit Margins

For the past 3 consecutive rounds, around 52-54% of the firms in the sample are reporting ‘much less than normal’ profit (Chart 4). 

Improved sales expectations are offset by high cost increases. As a result, profit expectations remain muted.