Economy comes to a standstill, inflation expectations rising fast: IIM-A survey

One year head business expectations (% response) 

By A Representative
The Indian Institute of Management-Ahmedabad’s (IIM-A) latest Business Inflation Expectations Survey (BIES), which seeks to provide ways to examine slack in the economy by polling a panel of business leaders in the short and medium-term, has said that the “effect of the extension of lockdown against the backdrop of Covid-19 spread” could be felt, as the economy has “come to a standstill”, and “inflation expectations are rising fast.”
“One year ahead, business inflation expectations in March 2020 has shot up sharply to 4.57% from 3.85% reported in February 2020”, the survey, based on the responses of over 1200 companies, says, adding, this is “the highest ever recorded” ever since the survey, a monthly feature, began in May 2017.

Current costs per unit compared with this time last year (% response)

“Uncertainty of business inflation expectations, as captured by the square root of the average variance of the individual probability distribution of unit cost increase, has marginally increased to 2.1% in March 2020 from around 2% in February 2020”, the survey underlines.
Pointing out that the cost perceptions data shows “clear signs of cost pressures building up”, the survey says, “Around two-fifths of the firms perceive that the current cost increase is over 6% and over one-fourth of the firms perceiving that the current cost increase is over 10%.” It adds, “Over 56% of the firms believe that the current cost increase is 3.1% and above as compared to the same time last year.”

Sales levels (% response)

Further, according to the survey, “Around 93% of the firms in the sample report that sales are ‘somewhat or much less than normal’ as against 85% reporting in February 2020”, noting, “The proportion has remained over 70% since June 2019.” It adds, “The effect of the extension of lockdown period due to Covid-19 is evident.”
“The proportion of firms in the sample reporting ‘much less than normal’ profit has further jumped up to 79% in March 2020 from 65% in February 2020”, the survey says, adding, “Over 93% of the firms in the sample expect ‘much less than normal or somewhat less than normal’ profit margins.” This proportion has remained around 75% since June 2019 till January 2020.

Profit margins (% response)