A. Inflation expectations

• One year ahead business inflation expectation, as estimated from the mean of individual probability distribution of unit cost increase, has sharply declined by 32 basis points to 3.80% in May 2025 from 4.12% reported in April 2025. The business inflation expectation fell below 4% after two years. Firms’ average inflation expectation during the past 12 months has remained anchored around 4.24%. The trajectory of one year ahead business inflation expectations is presented in Chart 1.

• The uncertainty of business inflation expectations in May 2025, as captured by the square root of the average variance of the individual probability distribution of unit cost increase, has increased to 1.95% from 1.79% reported in April 2025.

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

B. Costs

• Overall, the cost perceptions data in May 2025 indicate further moderation in cost pressures. The percentage of firms perceiving significant cost increase (over 6%) has declined to 26% from 29% reported in April 2025 survey (Chart 2).

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 – May 2025” is the 97 th round of the Survey. These results are based on the responses of around 1000 companies.

• The percentage of firms reporting decline in cost has increased from 11% in April 2025 to 15% in May 2025.

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

C. Sales Levels

• During March-May 2025, about 58% of the firms continue to report ‘much less than normal’ or ‘somewhat less than normal’ sales 2 (Chart 3).
• The percentage of firms reporting ‘about normal’ sales has remained stable around 28% during April-May 2025.

Chart 3: Sales Levels - % response

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

D. Profit Margins

• Around 66% of the firms are reporting ‘somewhat less than normal’ or lower profit expectations in May 2025 – up from 62% reported in April 2025 (Chart 4).
• The percentage of firms reporting ‘about normal’ profit has declined to 27% in May 2025 from 32% reported in April 2025.

Chart 4: Profit Margins - % response

Business Inflation Expectation Survey (BIES) – Questionnaire