Business inflation expectations for the year ahead fell sharply in May 2026, yet firms reported a significant worsening in sales and profit margins, according to the latest Business Inflation Expectations Survey (BIES) conducted by the Misra Centre for Financial Markets and Economy at IIM-A.
The one‑year ahead business inflation expectation, derived from the mean of individual probability distributions of unit cost increases, declined by 51 basis points to 5.13% in May 2026, from 5.64% in April 2026. Despite this drop, expectations have remained above the 5% mark for four consecutive months – a stretch not seen since August 2022. At the same time, uncertainty around these expectations, measured by the average variance of firm‑level probability distributions, stayed elevated at over 2% for the fifth month running.
Cost perceptions presented a mixed picture. The proportion of firms reporting moderate cost increases (in the 3%–6% range) rose from 22% to 26%, while the share of firms seeing costs rise "significantly" or more (over 6%) held steady at around 46% for the second straight month.
Sales expectations, however, took a sharp turn for the worse. In May, 65% of firms described their current sales as "much less than normal" or "somewhat less than normal" – a notable jump from 57% in April. Profit margin expectations also deteriorated, with 78% of businesses reporting margins "somewhat less than normal" or below, up from 72% in the previous month.
The BIES is a monthly survey of about 1,100 manufacturing companies, now in its 109th round. Unlike consumer‑focused surveys, it directly polls business leaders – the actual price setters – to capture probabilistic inflation expectations and measure uncertainty. The survey also provides an indirect gauge of overall demand conditions, complementing broader macroeconomic data for policy making.
"Normal" in the survey is defined as the average level over the preceding three years, excluding the Covid‑19 period, for sales and profit comparisons.
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