Business Inflation Expectations Survey (BIES) 1 – December 2023

A. Inflation expectations

One year ahead business inflation expectation, as estimated from the mean of individual probability distribution of unit cost increase, has increased significantly by 54 basis points to 4.58% in December 2023 from 4.04% reported in November 2023. Average inflation expectation of the firms for the past six consecutive months works out to be around 4.3%. The trajectory of one year ahead business inflation expectations is presented in Chart 1.
The uncertainty of business inflation expectations in December 2023, as captured by the square root of the average variance of the individual probability distribution of unit cost increase, declined sharply to 1.88% from 2.0% reported in November 2023.

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.

¹The 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 – December 2023” is the 80 th round of the Survey. These results are based on the responses of around 1000 companies.

Companies are selected primarily from the manufacturing sector. Starting in May 2017, the “BIES – December 2023” is the 80 th round of the Survey. These results are based on the responses of around 1000 companies.

Businesses in December 2023 expect one year ahead CPI headline inflation to be 4.96%, up by 23 basis points from 4.73% reported in October 2023, with a relatively low standard deviation of 0.88% (Chart 2).

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

B. Costs

The cost perceptions data in December 2023 indicate increase in cost pressures.
The percentage of firms perceiving significant cost increase (over 6%) in December 2023 has increased to 33% from around 29% reported during October-November 2023 (Chart 3). However, the percentage of firms reporting moderate cost increase (3.1% to 6.0%) has remained around 29% in December 2023.

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

C. Sales Levels

About 23% of the firms are reporting ‘somewhat greater than normal’ sales in December 2023 – up from 19% reported in November 2023 (Chart 4).
About 57% of the firms are reporting ‘normal’ or greater sales in December 2023 – significantly up from 46% reported in November 2023 2 .

Chart 4: Sales Levels - % response

D. Profit Margins

Around 48% of the firms in December 2023 are reporting profit margins to be ‘about normal’ or greater – significantly up from 43% reported in November 2023 (Chart 5).
Overall, the profit margins expectations have notably improved.

Chart 5: Profit Margins - % response

² "Normal" means as compared to the average level obtained in the preceding 3 years, excluding the Covid-19 period.

Business Inflation Expectation Survey (BIES) – Questionnaire

A. Current Business Conditions

Q1. How do your current PROFIT MARGINS^@ compare with "normal"* times?
o Much less than normal
o Somewhat less than normal
o About normal
o Somewhat greater than normal
o Much greater than normal

Q2. How do your current sales levels compare with SALES LEVELS^@ during what you consider to be "normal"* times?
o Much less than normal
o Somewhat less than normal
o About normal
o somewhat greater than normal
o 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?
o Down (< -1%)
o About unchanged (-1% to 1%)
o Up somewhat (1.1% to 3%)
o Up moderately (3.1% to 6%)
o Up significantly (6.1% to 10%)
o 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.

o Unit costs down (less than -1%)
o Unit costs about unchanged (-1% to 1%)
o Unit costs up somewhat (1.1% to 3%)
o Unit costs up moderately (3.1% to 6%)
o Unit costs up significantly (6.1% to 10%)
o Unit costs up very significantly (>10%)

^$ of the main or most important product in terms of sales.
Values should add up to 100%.

Business Inflation Expectations Survey (BIES) 1 – December 2023

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