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Business Inflation Expectations Survey (BIES) provides ways to examine the amount of slack in the economy by polling a panel of business leaders about their inflation expectations in the short and medium term. This monthly survey asks questions about year-ahead cost expectations and the factors influencing price changes, such as profit, sales levels, etc. The survey is unique in that it goes straight to businesses - the price setters - rather than to consumers or households, to understand their expectations of the price level changes. One major advantage of BIES is that one can get a probabilistic assessment of inflation expectations and thus get a measure of uncertainty. It also provides an indirect assessment of overall demand condition of the economy. Results of this Survey are, therefore, useful in understanding the inflation expectations of businesses and complement other macro data required for policy making. With this objective, the BIES was introduced at IIMA from May 2017. The questionnaire of BIES is finalized based on the detailed feedback received from the industry, academicians and policy makers.



Companies are selected primarily from the manufacturing sector. The“BIES - January 2022” is the 57thround of the Survey. These results are based on the responses of around 1000 companies.



A. Inflation expectations



• One year ahead business inflation expectations in January 2022, as estimated from the mean of individual probability distribution of unit cost increase, have increased significantly by49 basis points to almost 6.00% from 5.45% reported in December 2021.The trajectory of one year ahead business inflation expectations is presented in Chart 1.



• The uncertainty of business inflation expectations in January 2022, as captured by the square root of the average variance of the individual probability distribution of unit cost increase,has also increased sharply to 2.1% from1.9% reported in December 2021.



B. Costs



• The cost perceptions data indicates further hardening of cost pressures. Over 62% of the firms in this round of the survey perceive significant (over 6%) cost increase, as against 57% reported in the earlier two rounds (Chart 2).



• Over 36% of the firms perceive that costs have increased very significantly (over 10%), as compared to 27% reported in the earlier round. For the first time, over 1/3rd of the firms reported more than 10% cost increase.



C. Sales Levels



• Sales expectations continue to be subdued after they dropped sharply in December 2021 due to Covid/Omicron outbreak. Percentage of firms reporting ‘much less than normal’ sales remained around 36% for the last two rounds.



• Over 62%of the firms in January 2022 report that sales are ‘much or somewhat less than normal’(Chart 3) .



D. Profit Margins



• High cost increase along with muted sales has severely affected the profit margin expectations of firms.



• Over 54% of the firms in the sample report ‘much less than normal’ profit –significantly up from42% reported in December2021