Demand drag persists: IIMA survey reveals high uncertainty, weak profit expectations

By A Representative 

The Business Inflation Expectations Survey (BIES) for January 2026, conducted by the Misra Centre for Financial Markets and Economy at IIMA, points to a complex economic landscape where easing cost pressures are being offset by rising uncertainty and persistently muted demand.

According to the survey, which polled around 1,100 companies, the one-year ahead business inflation expectation in January 2026 declined marginally by 7 basis points to 4.29%, down from 4.36% in December 2025. This slight dip continues a trend of anchored expectations, with firms' average inflation expectation over the past 12 months holding steady around 4.11%.

However, this stability in the average figure masks a significant increase in the divergence of opinions among businesses. The uncertainty surrounding these inflation expectations, as measured by the survey, jumped sharply to 2.11% in January from 1.84% in December 2025.

Mixed Signals on Costs

The data on cost perceptions reveal a mixed picture. While the overall level of cost pressures appears moderate, there has been a polarization in how firms are experiencing cost increases. The percentage of firms reporting that their costs are 'up somewhat' (1.1% to 3%) declined to 23% in January, down from 28% in December. Concurrently, the proportion of firms facing more significant headwinds, with costs 'up significantly' (6.1% to 10%), increased to 19% from 13% over the same period.

Demand Remains a Concern

The survey's findings on sales and profit margins underscore a continuing challenge related to overall demand in the economy. Firms' sales expectations remain subdued, with 56% of respondents in January reporting sales levels as 'much less than normal' or 'somewhat less than normal'—a figure unchanged from December 2025.

This persistent weakness in sales is directly impacting corporate profitability. The percentage of firms reporting profit margins as 'somewhat less than normal' or below has remained stubbornly high, hovering around 69% during the November 2025 to January 2026 period. Overall, the survey indicates that profit margin expectations remain firmly muted.

Survey Methodology and Context

The BIES is unique in that it polls business leaders—the actual price-setters in the economy—to gauge inflation expectations and understand the factors influencing price changes, such as profit and sales levels. It provides a probabilistic assessment of expectations, offering a valuable measure of uncertainty and complementing macro data used for policy making.

It is important to note that the majority of responses for this January 2026 round were received during the second half of February 2026. This marks the 105th round of the survey, which has been conducted monthly since May 2017.