The latest Indian Institute of Management-Ahmedabad's (IIM-A's) Business Inflation Expectations Survey (BIES) has said that one-year-ahead business inflation expectations have eased marginally, observing a nuanced picture on the cost front. At the same time, there is sustained improvement in sales levels and profit margins.
According to the survey, the one-year-ahead business inflation expectation, estimated from the mean of individual probability distributions of unit cost increases, declined by 10 basis points to 4.84% in August 2026, down from 4.94% in July 2026. This marks the third consecutive month that business inflation expectations have remained below the 5% threshold. However, uncertainty surrounding these expectations remains elevated, with the square root of the average variance exceeding 2% for the eighth consecutive month.
Separately, firms expect one-year-ahead CPI headline inflation to reach 4.63% in August 2026, a marginal increase of 7 basis points from the 4.56% reported in June 2026. This question is posed every alternate month to coincide with the RBI’s bi-monthly monetary policy announcements.
The survey's cost perceptions data for August 2026 presents a mixed picture. The percentage of firms reporting a significant cost increase (in the 6% to 10% range) rose to 25% (the modal value), up from 23% in the previous round. Conversely, the proportion of firms perceiving a very significant cost increase (above 10%) declined sharply to 16% from 21%.
Meanwhile, the percentage of firms reporting that costs were "up moderately" (over 3% but below 6%) fell to 22%, down from 26% in the prior round. The survey also showed a slight uptick in firms reporting costs "up somewhat" (1.1% to 3%), which rose to 20% from 16%. The proportion of firms reporting costs remained "about unchanged" (-1% to 1%) decreased to 8% from 9%.
The data shows a notable shift toward normalization: the percentage of firms reporting "about normal" sales increased to 29% from 26% in the previous round. Firms reporting "somewhat greater than normal" sales also rose to 21% from 15%. On the lower end, the proportion of firms reporting "somewhat less than normal" sales declined to 20% from 22%, while those reporting "much less than normal" sales remained steady at 27%.
Profit margin expectations have improved over the past three months, according to the survey. The percentage of firms reporting "somewhat less than normal" or below profit margin expectations has further declined to 68% in August 2026, from 78% reported in May 2026.
The improvement is driven by a rise in firms reporting "about normal" profit margins, which increased to 23% from 21% in the previous round. The percentage of firms reporting "somewhat less than normal" margins dropped to 30% from 34%, while those reporting "much less than normal" margins fell to 38% from 36%. On the positive side, firms reporting "somewhat greater than normal" margins rose to 8% from 5%.
The BIES is a monthly survey conducted by IIM Ahmedabad. The August 2026 round asked firms to compare current profit margins, sales levels, and costs per unit against "normal" times—defined as the average level obtained during the corresponding time point of the preceding three years, excluding the Covid-19 period. Firms also projected forward-looking costs per unit over the next 12 months using a probability distribution.
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