'Cost pressure decreasing': IIM-A survey reveals early signs of economic recovery

By A Representative 
The Indian Institute of Management-Ahmedabad’s (IIM-A’s) Business Inflation Expectations Survey (BIES), which examines the amount of slack in the economy by polling a panel of business leaders about their inflation expectations, has said that while the past five months’ survey had found around four-fifths of the firms reporting ‘much less than or somewhat less than normal’ profit, the latest round in June suggested that profit expectations are beginning to show “early signs of optimism.”
Stating that the cost perceptions data indicates “persistence of high-cost pressures”, with over 65% of the participating firms in the survey “perceive significant (over 6%) cost increase for the consecutive four months”, the BIES report, however, said, “Percentage of firms perceiving over 10% cost increase y-o-y has declined sharply. Over 25% of the firms in June 2022 round of the survey perceive that costs have increased very significantly (over 10%) – down from 34% recorded in May 2022.”

It further said, firms’ sales expectations, too, have begun showing “signs of optimism”, as the percentage of firms reporting ‘somewhat less than normal’ sales has “declined sharply to 28% in June 2022 from 34% reported in May 2022.” Thus, “Around 27% of the firms in June 2022 report that sales are ‘about normal’, up from 23% reported in May 2022. ‘Normal’ means as compared to the average level obtained in the preceding 3 years, excluding the Covid-19 period.”
Conducted every month at the Misra Centre for Financial Markets and Economy, IIM-A, by obetaining responses of around 1,000 companies, the BIES report also said that one year ahead business inflation expectations in June 2022 have “declined by 41 bps to 5.17% from 5.58% reported in May 2022.”

“There are clear signals of business inflation expectations moderating”, the report said, adding, “The businesses in June 2022 expect one year ahead CPI headline inflation to be 5.50%, sharply down from 5.90% reported in April 2022, with a relatively low standard deviation of 1.0%.