IIM-A survey: Inflation, rising costs begin to worry Indian business houses, even as profits start looking up

Perception of inflation

By Our Representative
The Indian Institute of Management-Ahmedabad's (IIM-A's) latest Business Inflation Expectations Survey (BIES), based on responses from 1,941 companies, seeking answers the perceptions on business over the next one year, has said that, while there are signs of improved profit margins in April 2018, "One year ahead business inflation expectation in April 2018 is placed at 4.21%, showing a sharp increase from 3.73% , observed in March 2018."
Pointing out that "the uncertainty of business inflation expectations in April 2018 has increased to 2.24% (from 1.99% in March 2018)", the survey report, released by the top-notch business institute on Monday, underlines, "Businesses in April 2018 expect one year ahead Consumer Price Index (CPI) headline inflation to be 4.67%", which, it believes, is "significantly up from 4.1% observed in February 2018."
At the same reporting thst the business environment appears to be lookin up, the report states, "Responses of 41% of the firms in the sample in April 2018 indicate ‘much less than normal’ profit margin, down from March 2018 level", adding, "Also proportion of firms reporting ‘normal or above normal’ profit has gone up to 35% in April 2018."

Sales levels

Noting that "overall perception of firms shows that there are signs of improved profit margins in April 2018", the report defines "normal" to mean "the average level obtained in the preceding three years."
Coming to sales, the report says, "Around 46% of the firms in the sample reported that sales are ‘normal or greater than normal’ in April 2018", suggesting that "this proportion has increased in April 2018", adding as for cost perceptions, "around 57% of the firms in April 2018 reported that increase in costs" an increase of 3% during the last one year. "The proportion of firms perceiving significant cost increase has gone up sharply to 33% in April 2018", the report adds.
Explaining the suevey, the IIM-A, in a release, said, "The Business Inflation Expectations Survey 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." A monthly survey, it "asks questions about year-ahead cost expectations and the factors influencing price changes, such as profit, sales levels, etc."

Cost per unit

Calling the survey "unique", IIM-A says, "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", adding, "One major advantage of BIES is that one can get a probabilistic assessment of inflation expectations and thus can get a measure of uncertainty."
IIM-A further says, the survey "provides an indirect assessment of overall demand condition of the economy", claiming that it's results "useful in understanding the inflation expectations of business and complement other macro data required for policy making."

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