Profit expectations remain muted due to high cost increases, subdued sales: IIM-A survey

By Our Representative
The Indian Institute of Management-Ahmedabad's (IIM-A) latest Business Inflation Expectations Survey (BIES), which provides ways to examine the amount of slack in the economy by polling a panel of business leaders, has said that the cost perceptions data indicate "persistence of high-cost pressures."
Stating that over 66% of the participating firms in the survey perceive significant (over 6%) cost increase for the consecutive four months, the BIES report, however, states, "Percentage of firms perceiving over 10% cost increase y-o-y has been slowly declining. Over 34% of the firms in May 2022 round of the survey perceive those costs have increased very significantly (over 10%) – down from 39% recorded in February 2022."

Conducted by the Misra Centre for Financial Markets and Economy, IIM-A, on the basis of responses of around 1,000 companies, and claiming to be unique "in that it goes straight to businesses -- the price setters -- rather than to consumers or households, to understand their expectations", the latest round of survey says, "Firms’ sales expectations have moderated. Percentage of firms reporting ‘somewhat less than normal’ sales has increased sharply to 34% in May 2022 from 27% reported in April 2022."
Even as pointing out that "around 23% of the firms in May 2022 report that sales are ‘about normal’, down from 28% reported in April 2022", the survey, a monthly affair, says, "For the past five consecutive rounds, around 4/5th of the firms in the sample reported ‘much less than or somewhat less than normal’ profit. Profit expectations remained muted due to high cost increases and subdued sales expectations."

The survey also notes, "One year ahead business inflation expectations in May 2022 have declined sharply by 44 bps to 5.58% from 6.02% reported in April 2022. There are early signs of business inflation expectations tapering off, after remaining close to or above 6% during January-April 2022." However, "The uncertainty of business inflation expectations in May 2022 has remained around 2.1%, same as reported during February-April 2022."

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