IIM Ahmedabad | Business Inflation Expectations Survey (BIES) – April 2022

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Business Inflation Expectations Survey (BIES) – April 2022

June 08, 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. 

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Companies are selected primarily from the manufacturing sector. Starting in May 2017, the “BIES – April 2022” is the 60th 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 April 2022, as estimated from the mean of individual probability distribution of unit cost increase, have marginally declined by 10 bps to 6.02 from 6.12% reported in March 2022. The business inflation expectations remained above 6% for the third consecutive month. The trajectory of one year ahead business inflation expectations is presented in Chart 1.  

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  • The uncertainty of business inflation expectations in April 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-March 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 April 2022 expect one year ahead CPI headline inflation to be 5.90%, further up from 5.74% reported in February 2022, with a relatively low standard deviation of 1.1% (Chart 2). 

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

B. Costs

  • The cost perceptions data indicates persistence of high cost pressures.  Over 66% of the participating firms in the survey perceive significant (over 6%) cost increase for the consecutive three months (Chart 3). 
  • Over 36% of the firms in April 2022 round of the survey perceive that costs have increased very significantly (over 10%). For the consecutive four rounds, over 36% of the firms reported more than 10% cost increase. 

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

C. Sales Levels

  • Firms’ sales expectations in April 2022 have further improved. Percentage of firms reporting ‘much less than normal’ sales has marginally declined.
  • Notably around 28% – highest in the last 5 years – of the firms in April 2022 report that sales are ‘about normal’ (Chart 4).

Chart 4: Sales Levels – % response

D. Profit Margins

  • For the past 4 consecutive rounds, over 77% of the firms in the sample are reporting ‘much less than or somewhat less than normal’ profit (Chart 5). 
  • Improved sales expectations are offset by high cost increases. As a result, profit expectations remain muted. 

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%.