Business Inflation Expectations Survey (BIES)-July 2022

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September 5, 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 – July 2022” is the 63rd 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 July 2022, as estimated from the mean of individual probability distribution of unit cost increase, have further declined by 34 bps to 4.83% from 5.17% reported in June 2022. Business inflation expectations have dropped below 5% after 17 months. The trajectory of one year ahead business inflation expectations is presented in Chart 1.
• The uncertainty of business inflation expectations in July 2022, as captured by the square root of the average variance of the individual probability distribution of unit cost increase, has remained around 2%, same as reported during February-June 2022.

B. Costs
• The cost perceptions data clearly indicates easing of cost pressures. Around 53% of the participating firms in the survey perceive significant (over 6%) cost increase, down significantly from 65% reported in the earlier round of the survey (Chart 2).
• The percentage of firms perceiving over 10% cost increase y-o-y has further declined. Over 24% of the firms in July 2022 round of the survey perceive that costs have increased very significantly (over 10%) – down sharply from 36% recorded in April 2022.

C. Sales Levels
• Firms’ sales expectations show signs of improved optimism. Percentage of firms reporting ‘somewhat less than normal’ sales has declined further to 26% in July 2022 from 28% reported in June 2022.
• Around 15% of the firms in July 2022 report that sales are ‘somewhat greater than normal’, up from 11% reported in June 2022.

D. Profit Margins
• Profit expectations show signs of improved optimism.
• About 1/4th of the participating firms in the survey perceive profit margins to be about normal – sharply up 16% reported in the earlier round of the survey.

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