Inflation expectation goes up, profits are down: Survey of 1,300 business executives

By A Representative
The just-released Business Inflation Expectations Survey (BIES) of the Indian Institute of Management-Ahmedabad (IIM-A), which provides ways to examine the amount of slack in the economy by polling a panel of business leaders, has said that one year ahead business inflation expectations in May 2021 shot up by 23 basis points to 5.43% from 5.20% reported in April 2021, adding, the firms' inflation expectations have been rising since September 2020.
At the same time, the survey says, over 56% of the firms perceive significant (over 6%) cost increase, with the effect of the second wave of Covid-19 on sales expectations remaining all pervasive. “Over 52% of the firms in May 2021 report that sales are much less than normal”, the survey report says.
Based on the responses of around 1,300 companies, the report regrets, “Slight improvement in sales expectations observed in May 2021 is more than offset by increase in costs. As a result, expectations of better profit margins have deteriorated.”

The report says, “The cost perceptions data indicates further increase of cost pressures. Over 56% of the firms in this round of the survey perceive significant (over 6%) cost increase – up from 54% reported in April 2021. About 28% of the firms in May 2021 perceive that costs have increased very significantly (over 10%).” It adds, “Over 75% of the firms in May 2021 find that the current cost increase is ‘3.1% and above’ as compared to 61% reported in March 2021.”
Pointing out that the effect of second wave of Covid-19 could still be seen on sales expectations, the report says, “Over 52% of the firms in May 2021 report that sales are ‘much less than normal’ – slight improvement as compared to the sentiment reported in April 2021”, but adds, “Over 60% of the firms in the sample in May 2021 report ‘much less than normal’ profit – further up from 55% reported in April 2021.”

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