High cost increases offset improved sales, profits remain muted: IIM survey

By A Representative
The Indian Institute of Management-Ahmedabad’s Business Inflation Expectations Survey (BIES), which seeks to provide ways to examine the amount of slack in the economy by polling a panel of business leaders, has found that “the cost perceptions data indicates persistence of high cost pressures.”
Stating that around 70% of the participating firms in the survey perceive significant (over 6%) cost increase for the consecutive two months, the survey says, “Over 39% of the firms in March 2022 round of the survey perceive that costs have increased very significantly (over 10%). For the consecutive two rounds, around 2/5th of the firms reported more than 10% cost increase.”

Based on the responses of around 1,100 companies, the survey further says that for the past three consecutive rounds of the survey “around 52-54% of the firms in the sample are reporting ‘much less than normal’ profit.” It adds, “Improved sales expectations are offset by high cost increases. As a result, profit expectations remain muted.”
On a positive side, the survey says, “Firms’ sales expectations in March 2022 have improved. Percentage of firms reporting ‘much less than normal’ sales has declined to 29% from around 36-37% reported in the last four rounds. About 1/4th of the firms in March 2022 report that sales are ‘about normal’.” "Normal" means as compared to the average level obtained in the preceding 3 years, excluding the Covid-19 period.

The survey further says, “One year ahead business inflation expectations in March 2022, as estimated from the mean of individual probability distribution of unit cost increase, have further increased marginally to 6.12% from 6.09% in February 2022. The business inflation expectations remained above 6% for the second consecutive month.”
“The uncertainty of business inflation expectations in March 2022, as captured by the square root of the average variance of the individual probability distribution of unit cost increase, has remained around 2.1%, same as reported in February 2022”, it adds.

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