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 and sales levels. 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 can 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 business and complement other macro data required for policy making.
IIM-A introduced the BIES from May 2017. The questionnaire is finalised based on the detailed feedback received from the industry, academicians and policy makers. Companies, mostly in the manufacturing sector, are selected based on certain sampling criteria from the list of companies as available with the Ministry of Corporate Affairs.
BIES April 2018 is the 12th round of the survey. These results are based on the responses of 1941 companies:
A. Inflation expectations
- One year ahead, business inflation expectation in April 2018, as estimated from the mean probability distribution of unit cost increase, is placed at 4.21 per cent, showing a sharp increase from 3.73 per cent observed in March 2018.
- Uncertainty of business inflation expectations in April 2018, as captured by the square root of the average variance of the individual mean probability distributions, is estimated to be 2.24 per cent (sharply increased from 1.99 per cent observed in March 2018).
- Respondents were also asked to project one year ahead CPI headline inflation through an additional question using a probability distribution. This question is being repeated now in every alternate month, coinciding with the month of RBI’s bi-monthly monetary policy announcements.
- Survey results indicate that businesses in April 2018 expect one year ahead CPI headline inflation to be 4.67 per cent (significantly up from 4.1 per cent observed in February 2018), with a relatively low standard deviation of 1.18 per cent.
B. Costs
- Regarding cost perceptions, around 57 per cent of the firms in April 2018 reported that increase in costs has been more than 3 per cent during the last year. The proportion of firms perceiving significant cost increase has gone up sharply to 33 per cent in April 2018.
C. Sales levels
- Around 46 per cent of the firms in the sample reported that sales are ‘normal or greater than normal’ in April 2018.
D. Profit margins
- Responses of 41 per cent of the firms in the sample in April 2018 indicate ‘much less than normal’2 profit margin, down from March 2018 level. Also proportion of firms reporting ‘normal or above normal’ profit has gone up to 35 per cent in April 2018.
- Overall perception of firms shows that there are signs of improved profit margins in April 2018.