Business Inflation Expectations Survey (BIES) – June 2022


August 05, 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 – June 2022” is the 62nd round of the Survey. These results are based on the responses of around 1000 companies.

A. Inflation expectations

  • One year ahead business inflation expectations in June 2022, as estimated from the mean of individual probability distribution of unit cost increase, have further declined by 41 bps to 5.17% from 5.58% reported in May 2022. There are clear signals of business inflation expectations moderating. The trajectory of one year ahead business inflation expectations is presented in Chart 1.   
  • The uncertainty of business inflation expectations in June 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 during February-May 2022.

Chart 1: One year ahead business inflation expectations (%)

  • 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.
  • The businesses in June 2022 expect one year ahead CPI headline inflation to be 5.50%, sharply down from 5.90% reported in April 2022, with a relatively low standard deviation of 1.0% (Chart 2). 

Chart 2: Expected CPI headline inflation (%) – one year ahead

B. Costs

  • The cost perceptions data indicates persistence of high-cost pressures.  Over 65% of the participating firms in the survey perceive significant (over 6%) cost increase for the consecutive four months (Chart 3). 
  • However, percentage of firms perceiving over 10% cost increase y-o-y has declined sharply.  Over 25% of the firms in June 2022 round of the survey perceive that costs have increased very significantly (over 10%) – down from 34% recorded in May 2022. 

Chart 3: How do current costs per unit compare with this time last year? – % responses

C. Sales Levels

  • Firms’ sales expectations show signs of optimism. Percentage of firms reporting ‘somewhat less than normal’ sales has declined sharply to 28% in June 2022 from 34% reported in May 2022.
  • Around 27% of the firms in June 2022 report that sales are ‘about normal’, up from 23% reported in May 2022 (Chart 4).

Chart 4: Sales Levels – % response

D. Profit Margins

  • For the past five consecutive rounds, around 4/5th of the firms in the sample reported ‘much less than or somewhat less than normal’ profit (Chart 5). 
  • Profit expectations show early signs of optimism.

Chart 5: Profit Margins – % response

Business Inflation Expectation Survey (BIES) – Questionnaire

A. Current Business Conditions
Q1. How do your current PROFIT MARGINS@ compare with “normal”* times? Much less than normalSomewhat less than normalAbout normalSomewhat greater than normalMuch greater than normal
Q2. How do your current sales levels compare with SALES LEVELS@ during what you consider to be “normal”* times?Much less than normal Somewhat less than normal About normal somewhat greater than normal Much greater than normal 
@   of the main or most important product in terms of sales.*”normal” means the average level obtained during the corresponding time point of preceding 3 years, excluding the Covid-19 period.
B. Current Costs Per Unit^Q3. Looking back, how do your current COSTS PER UNIT^ compare with this time last year? Down (< -1%)About unchanged (-1% to 1%)Up somewhat (1.1% to 3%)Up moderately (3.1% to 6%)Up significantly (6.1% to 10%)Up very significantly (> 10%)
^   of the main or most important product in terms of sales.
C. Forward Looking Costs Per Unit$Q4. Projecting ahead, to the best of your ability, please assign a percent likelihood (probability) to the following changes to costs per unit$ over the next 12 months. 
%%%%%%Unit costs down (less than -1%)           Unit costs about unchanged (-1% to 1%)Unit costs up somewhat (1.1% to 3%)Unit costs up moderately (3.1% to 6%)Unit costs up significantly (6.1% to 10%)Unit costs up very significantly (>10%)
$   of the main or most important product in terms of sales.Values should add up to 100%.


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