Business inflation expectations ease, sales outlook brightens, but uncertainty persists: IIM-A survey

By A Representative 

Business inflation expectations in India moderated notably in June 2026, with firms anticipating lower cost pressures over the coming year amid improving sales and a gradual recovery in profit margins, according to the latest Business Inflation Expectations Survey (BIES) conducted by the Misra Centre for Financial Markets and Economy at the Indian Institute of Management Ahmedabad (IIMA).

Inflation Expectations Dip Below 5%

The headline one-year ahead business inflation expectation, calculated as the mean of individual probability distributions for unit cost increases, fell by 29 basis points to 4.84% in June 2026, down from 5.13% recorded in May. This marks the first time in four months that firms' inflation expectations have slipped below the 5% threshold, signalling a potential easing of pricing pressures across the corporate sector.

However, uncertainty surrounding these expectations remained pronounced. The standard deviation of the individual probability distributions—used as a proxy for uncertainty—stayed above 2% for the sixth consecutive month, suggesting that while the central tendency has softened, businesses remain divided about the future trajectory of costs.

In a supplementary question fielded every alternate month to coincide with the Reserve Bank of India's bi-monthly monetary policy cycle, businesses projected one-year ahead Consumer Price Index (CPI) headline inflation at 4.56%, a decline of 38 basis points from the 4.94% reading reported in April 2026. Uncertainty around CPI expectations also remained elevated, staying above 1.0% continuously from February through June 2026.

Mixed Signals on Cost Pressures

The survey, which polls approximately 1,000 companies drawn primarily from the manufacturing sector, revealed divergent trends in current cost perceptions. The proportion of firms reporting a significant cost increase—in the range of 6% to 10%—jumped sharply to 27% in June from 19% in May. Conversely, the share of firms experiencing very significant cost increases exceeding 10% declined from 27% to 20%.

In aggregate, the percentage of firms perceiving costs as "up significantly" or higher (above 6%) held steady at roughly 46% for the third straight month, indicating that while extreme cost pressures may be abating, a substantial segment of industry continues to grapple with elevated input expenses.

Demand Conditions Show Improvement

On the demand front, the June survey offered encouraging signs. The share of firms reporting sales at "about normal" levels or better rose sharply to 43%, up from 35% in May. "Normal" is defined in the survey as the average level obtained during the corresponding period over the preceding three years, excluding the COVID-19 period.

Profit margin expectations also showed tentative signs of recovery. The percentage of firms reporting profit margins at "somewhat less than normal" or worse declined to 73% in June, down from 78% in April, suggesting that pricing power and operational efficiency may be gradually returning.

About the Survey

The June 2026 round represents the 110th iteration of the BIES, which has been conducted monthly since May 2017. The survey is distinctive in that it captures probabilistic assessments of inflation expectations directly from business leaders—the primary price setters in the economy—rather than from consumers or households. This approach allows policymakers to gauge not only the direction of expected price changes but also the degree of uncertainty surrounding them, while providing an indirect read on overall demand conditions.

The results are widely monitored by the Reserve Bank of India and other macroeconomic policymakers as a complement to traditional inflation and output data.