IIM Ahemdabad-Business Inflation Expectations Survey (BIES) November 2021

January 5, 2022

January 05, 2021: 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 was introduced at IIMA from May 2017. The questionnaire of BIES is finalized based on the detailed feedback received from the industry, academicians and policy makers. A copy of the questionnaire is annexed.

Companies are selected primarily from the manufacturing sector. The “BIES – November 2021” is the 55th round of the Survey. These results are based on the responses of around 1200 companies.

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A. Inflation expectations

One year ahead business inflation expectations in November 2021, as estimated from the mean of individual probability distribution of unit cost increase, have declined further by 17 basis points to 5.30% from 5.47% reported in October 2021. The trajectory of one year ahead business inflation expectations is presented in Chart 1.

The uncertainty of business inflation expectations in November 2021, as captured by the square root of the average variance of the individual probability distribution of unit cost increase, has remained elevated at 2.1%.

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

B. Costs

The cost perceptions data is yet to indicate any significant reduction of cost pressures. There is a marginal decline in the number of firms perceiving very high cost increase (over 10%). Nevertheless, around 29% of the firms are reporting more than 10% cost increase.

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Further, the number of firms perceiving significant cost increase (over 6%) has remained high around 57% during last two rounds of the survey (Chart 2).

Chart 2: How do current costs per unit compare with this time last year? – % responses

C. Sales Levels

Starting from the previous round, sales expectations have improved and remained buoyant. However, around 57% of the firms still report that sales are ‘much or somewhat less than normal’, as compared to 55% reported in October 2021 (Chart 3)[1].

t 3: Sales Levels – % response

D. Profit Margins

Around 43% of the firms in the sample in November 2021 report ‘much less than normal’ profit – further down from 45% reported in October 2021 (Chart 4).