A. Inflation expectations

• One year ahead business inflation expectations, as estimated from the mean of individual probability distribution of unit cost increase,  declined marginally by 9 basis points to 4.31% in April 2023, from 4.40% reported in March 2023. This has been the third consecutive decline and the lowest since December 2022.  The trajectory of one year ahead business inflation expectations is presented in Chart 1.
• The uncertainty of business inflation expectations in April 2023, as captured by the square root of the average variance of the individual probability distribution of unit cost increase, has remained unchanged around 2%, as in March 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.
• Businesses in April 2023 expect one year ahead CPI headline inflation to be marginally lower at 4.81%, as against 4.94% reported in February 2023, with a relatively low standard deviation of 0.99% (Chart 2).

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

B. Costs

• Overall, the cost perceptions data indicates further moderation of cost pressures. The percentage of firms perceiving significant (over 6%) cost increase, has declined from 31% to 20% in this round of the survey.
• Majority (over 33%) of the firms perceive that costs have gone up moderately – in the range of 3.1% to 6% (Chart 3).

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

C. Sales Levels 

• Firms’ sales expectations have remained subdued. Over 26% of the firms are still reporting ‘much less than normal’ sales in April 2023.
• The percentage of firms reporting ‘somewhat less than normal’ sales has increased to 34% in April 2023, from 30% reported in March 2023 (Chart 4)²

Chart 4: Sales Levels - % response

D. Profit Margins

• With moderation in cost pressures, the profit margins expectations have improved. Over 30% of the participating firms in April 2023 perceive profit margins are ‘about normal’ – up from 23% reported in March 2023 (Chart 5).

Chart 5: Profit Margins - % response 

Business Inflation Expectation Survey (BIES) – Questionnaire

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