A. Inflation expectations
- One year ahead business inflation expectation, as estimated from the mean of individual probability distribution of unit cost increase, has again increased marginally to 4.44% in October 2023, from 4.39% reported in September 2023. Average inflation expectation of the firms remained anchored around 4.3% for the past six consecutive months. The trajectory of one year ahead business inflation expectations is presented in Chart 1.
- The uncertainty of business inflation expectations in October 2023, as captured by the square root of the average variance of the individual probability distribution of unit cost increase, has declined to 1.9% from 2.1% reported in September 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.
1 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 – September 2023” is the 78th round of the Survey. These results are based on the responses of around 1200 companies.
- Businesses in October 2023 expect one year ahead CPI headline inflation to be 4.73%, down by 27 basis points from 5.00% reported in August 2023, with a relatively low standard deviation of 1.0% (Chart 2).
Chart 2: Expected CPI headline inflation (%) - one year ahead
B. Costs
- The cost perceptions data in October 2023 does not indicate any significant increase in cost pressures.
- The percentage of firms perceiving significant cost increase (over 6%) has declined from 32% in September 2023 to 29% in October 2023 (Chart 3). Around 1/3rd of the firms is reporting moderate cost increase (3.1% to 6.0%).
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 October 2023 – up significantly from 17% reported in September 2023 (Chart 4).
- Almost 50% of the firms are reporting ‘normal’ or greater sales in October 2023 from 45% in September 20232.
Chart 4: Sales Levels - % response
D. Profit Margins
- Around 44% of the firms in October 2023 are reporting profit margins to be ‘about normal’ or greater, as compared to 36% reported in September 2023 (Chart 5).
- Overall, the profit margins expectations have improved significantly.
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
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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.
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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. |
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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.
Unit costs down (less than -1%)
- Unit costs about unchanged (-1% to 1%)
- Unit costs up somewhat (1.1% to 3%)
- Unit costs up moderately (3.1% to 6%)
- Unit costs up significantly (6.1% to 10%)
- Unit costs up very significantly (>10%)
$ of the main or most important product in terms of sales.
Values should add up to 100%.
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