May 2023: 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. 

Companies are selected primarily from the manufacturing sector. Starting in May 2017, the “BIES - March 2023” is the 71st round of the Survey. These results are based on the responses of around 1000 companies.
 

A. Inflation expectations

• One year ahead business inflation expectations, as estimated from the mean of individual probability distribution of unit cost increase, have declined further by 13 basis points to 4.40% in March 2023, from 4.53% reported in February 2023. The trajectory of one year ahead business inflation expectations is presented in Chart 1.
• The uncertainty of business inflation expectations in March 2023, as captured by the square root of the average variance of the individual probability distribution of unit cost increase, has remained same around 2%, as compared to that in February 2023.

Chart 1: One year ahead business inflation expectations (%)

B. Costs

• Overall, the cost perceptions data indicates slight moderation of cost pressures. However, the percentage of firms perceiving significant (over 6%) cost increase, has increased from 25% to 31% in this round of the survey. 
• The percentage of firms perceiving over 10% cost increase y-o-y has declined. Over 13% of the firms in March 2023 round of the survey perceive that costs have increased very significantly (over 10%) – further down from 15% recorded in February 2023 (Chart 2). 

Chart 2: How do current costs per unit compare with this time last year? – % responses

C. Sales Levels

• Firms’ sales expectations have remained subdued. Over 27% of the firms are still reporting ‘much less than normal’ sales in March 2023.
• The percentage of firms reporting ‘somewhat less than normal’ sales has increased to 30% in March 2023, from 28% reported in February 2023 (Chart 3)¹.

Chart 3: Sales Levels - % response

D. Profit Margins

• The profit margins expectations have remained subdued.
• Over 34% of the participating firms in March 2023 still perceive profit margins are ‘much less than normal’. In addition, over 37% of the firms perceive profit margins are ‘somewhat less than normal’ – up from 33% reported in February 2023 (Chart 4). 

Chart 4: Profit Margins - % response

Business Inflation Expectation Survey (BIES) – Questionnaire

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