In a clear sign that people’s earnings and spending have been impacted following the large-scale lay-offs across industries and loss of business for entrepreneurs, companies are reporting sales to be ‘somewhat or much less than normal’.
In its latest Business Inflation Expectations Survey (BIES) for the month of May 2020, released by the Indian Institute of Management Ahmedabad (IIM-A), companies are seen losing confidence on sales as well as retaining profit margins.
Around 92 per cent of the firms in the sample reported that sales are “somewhat or much less than normal”, which was 60 per cent in the same month last year. ‘Normal’ means as compared to the average level that obtained in the preceding three years.
“So there is very little change in perceptions — pessimism continues to dominate business performance,” a note on the survey said.
Profit margins
The report also revealed that over 75 per cent of firms surveyed in May 2020 reported that profit margins were ‘much less than normal’ — significantly higher from 44 per cent companies that reported the same in May 2019.
Started in May 2017 by IIM-A faculty Abhiman Das, the BIES aims to examine the extent of slackness in the economy by polling a panel of business leaders about their inflation expectations in the short and medium term.
The monthly survey tracks responses of around 1,300 companies, which provide their inputs on the year-ahead cost expectations and the factors influencing price changes, such as profit and sales levels. Besides providing a probabilistic assessment of inflation expectations, the survey also makes an indirect assessment of overall demand conditions in the economy.
Inflation expectation
In its finding for the month of May 2020, the survey points at a decline in business inflation expectations marginally by 13 basis points to 4.24 per cent, from 4.37 per cent reported in April 2020. But the same is higher by 57 basis points from 3.67 per cent reported in the same month last year. The three-year trend shows an upward trajectory of the business inflation expectation.
While sales are likely to be hampered, the inflation expectation is high; about 20 per cent companies believe costs will increase by over 10 per cent. However, a larger 53 per cent of firms believe that the current cost increase is 3.1 per cent and above, as compared to the same time last year.
The survey is unique as it goes straight to businesses, which are the price-setters, rather than to consumers or households, to understand their expectations of the price level changes. The BIES makes a probabilistic assessment of inflation expectations and thus achieves a fairly accurate measure of the prevailing uncertainty.