The Business Inflation Expectations Survey (BIES) provides a way to examine the extent of the slowdown in the economy by conducting a panel poll of business leaders on their short and medium term inflation expectations.
The Business Inflation Expectations Survey (BIES) provides a way to examine the extent of the slowdown in the economy by conducting a panel poll of business leaders on their short and medium term inflation expectations. This monthly survey asks questions about year-over-year cost expectations and the factors that affect price changes such as profit, sales volume, etc. The survey is unique in that it goes directly to the business – the appraisers – not the consumer or the family, to understand their expectations of price changes. A big advantage of BIES is that one can get a probable assessment of inflation expectations and thus get a measure of uncertainty. It also provides an indirect assessment of the overall demand state of the economy. The results of this survey, therefore, are useful for understanding business inflation expectations and complement other macro data needed for policy making. To this end, BIES was launched at IIMA in May 2017 BIES questions are finalized based on detailed feedback from industry, academics and policy makers. A copy of the question paper has been attached.
Companies are selected primarily from the manufacturing sector. ‘BIES – August 2021’ is the 52nd round of the survey. These results are based on feedback from around 1200 companies.
A. Inflation expectations
- Expectations of business inflation in August 2021, one year ahead, are projected from the average distribution of personal potential for unit cost increases, down from 5.59 per cent in July 2021 to 5.22 per cent, down 37 basis points. The trajectory of business inflation is presented in Chart 1, one year ahead.
- The uncertainty of business inflation expectations, as measured by the square root of the average variation in the distribution of individual potential for unit cost increases, remained around 1.9 percent between July-August 2021.
Chart 1: One year ahead of business inflation expectations (percent)
- Respondents were asked to project CPI headline inflation a year ago through an additional question using a probability distribution. This question is repeated every alternate month, corresponding to the month of RBI’s bi-monthly monetary policy announcement.
- Responses to the survey indicate a fall in CPI headline inflation one year ahead of expectations. In August 2021, businesses expect CPI headline inflation to be 4.98 percent a year earlier, down from 5.36 percent reported in July 2021, with a low standard deviation of 0.97 percent (Chart 2). It has been above 4 percent since February 2020.
Chart 2: Expected CPI headline inflation (percent) – one year ahead
- Cost perception data indicates sustainable high cost pressures. More than 55 percent of companies reported significant (over 6 percent) cost increases in this round of survey (Chart 3).
- Note that about 30 percent of companies realize that costs have increased significantly (over 10 percent) – more than the percentage response received in July 2021.
Chart 3: How do current costs per unit compare to this time last year? – Percent response
C. Sales level
- Sales expectations have improved further. In August 2021, about 36 percent of companies reported that sales were much lower than ‘normal’ (excluding ‘normal’ meaning Covid-19 period compared to the average level achieved in the previous 3 years) reported in July 2021 (Chart 4). At the same time, companies report that sales ‘slightly higher than normal’ increased from 9 percent in August 2021 to 14 percent.
Chart 4: Sales Level – Percent Feedback
D. profit margin
- About 44 percent of the companies surveyed in August 2021 reported a ‘much lower than normal’ profit – much lower than the 46 percent reported in July 2021 (Chart 5).
- About 17 percent of companies now report that profit expectations are ‘normal’ – up from 14 percent reported in July 2021.
Chart 5: Profit Margin – Percentage Response