Firms report higher costs, weak demand conditions persist: IIM-A survey

By A Representative

Cost pressures showed a moderate uptick in December 2025 even as sales and profit margins remained subdued, according to the latest round of the Business Inflation Expectations Survey (BIES) of the Indian Institute of Management-Ahmedabad (IIM-A).

On costs, 28 per cent of firms reported that their current costs per unit were “up somewhat” in the range of 1.1 per cent to 3 per cent compared with the same time last year, higher than 25 per cent in November 2025. The survey’s overall assessment indicated a moderate increase in cost pressures during the month, reflecting a gradual firming in input prices across businesses.

Sales conditions remained weak for the second consecutive month. Around 56 per cent of firms in December reported their sales levels as “much less than normal” or “somewhat less than normal”, unchanged from November. The findings suggest that demand conditions have not improved, with more than half of respondents continuing to report below-normal sales compared with the average levels prevailing in the corresponding period of the preceding three years, excluding the Covid-19 phase.

Profit margins continued to face strain. About 68 per cent of firms indicated that their profit margins were “somewhat less than normal” or lower in December, broadly the same as in November. The persistently high share of firms reporting compressed margins underscores the combined impact of moderate cost pressures and subdued sales on business profitability.

Against this backdrop, one-year ahead business inflation expectations rose for the third consecutive month. The mean expected unit cost increase climbed to 4.36 per cent in December 2025 from 4.16 per cent in November and 3.97 per cent in October. Despite the recent uptick, the average inflation expectation over the past 12 months has remained broadly anchored at around 4.10 per cent.

Uncertainty surrounding business inflation expectations declined notably. The measure of uncertainty, based on the square root of the average variance of individual probability distributions of unit cost increases, fell to 1.84 per cent in December from 2.10 per cent in November, indicating greater confidence among firms in assessing future cost movements.

In addition, businesses projected one-year ahead CPI headline inflation at 3.98 per cent in December 2025, up by 15 basis points from 3.83 per cent reported in October, when the question was last asked. Uncertainty associated with CPI inflation expectations remained low at around 0.87 per cent, pointing to relatively stable inflation perceptions at the headline level.

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