Cost pressures up, 22-month high inflation expectation: IIM-A survey

By A Representative 

The Indian Institute of Management-Ahmdabad's latest Business Inflation Expectations Survey (BIES) has said that the cost perceptions data based on a survey of 1,000 business executives  "indicate increase in cost pressures." 

"The percentage of firms perceiving significant cost increase (over 6% to 10%) in April 2024 has increased sharply to 21%, from around 16% reported in March 2024", it says, adding, "The percentage of firms reporting moderate cost increase (3.1% to 6.0%), on the other hand, has declined to 26% in April 2024, from 29% reported in March 2024."

At the same time, it asserts, The sales expectations scenario during February-April 2024 remained similar. Around 18-19% of the firms are reporting ‘somewhat greater than normal’," adding, "About 55% of the firms are still reporting ‘somewhat less than normal’ or lower sales during March-April 2024 ."

The survey further reveals that "around 48% of the firms in April 2024 are reporting profit margins to be ‘about normal’ or greater – up from 42% reported in March 2024", adding, "Overall, the profit margins expectations have improved in April 2024."

The BIES, conducted by the Misra Centre for Financial Markets and Economy, IIMA, claims to provide ways to examine the amount of slack in the economy by polling a panel of business leaders about their inflation expectations in the short and medium term. 

Asking questions about year-ahead cost expectations and the factors influencing price changes, such as profit, sales levels, etc. the survey is considered to be  "unique" as it goes "straight to businesses -- the price setters -- rather than to consumers or households, to understand their expectations of the price level changes."

An IIM-A note says, "One major advantage of BIES is that one can get a probabilistic assessment of inflation expectations and thus get a measure of uncertainty. It also provides an indirect assessment of overall demand condition of the economy. Results of this survey are, therefore, useful in understanding the inflation expectations of businesses and complement other macro data required for policy making."

It notes, "One year ahead business inflation expectation, as estimated from the mean of individual probability distribution of unit cost increase, has increased sharply by 29 basis points to 4.84% in April 2024 from 4.55% reported in March 2024. Firms’ inflation expectation in the current round is the highest in the past 22 months."