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A Survey on Business Inflation Expectations(BIES) by IIM- February 2019

A Survey on Business Inflation Expectations(BIES) by IIM- February 2019


The 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 can 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 business and complement other macro data required for policy making. With this objective, the BIES was introduced by Professor Abhiman Das at IIMA from May 2017 (Past reports are available at: https://www.iima.ac.in/web/faculty/faculty-profiles/abhiman-das). The questionnaire of BIES is finalized based on the detailed feedback received from the industry, academicians and policy makers. A copy of the questionnaire is enclosed for information.

Companies, mostly in the manufacturing sector, are selected based on certain sampling criteria from the list of companies as available with the Ministry of Corporate Affairs (MCA). BIES – February 2019 is the 22nd round of the Survey. These results are based on the responses of over 1600 companies.

Inflation expectations

  • One year ahead business inflation expectation, as estimated from the mean of individual probability distribution of unit cost increase, has increased sharply to 3.55% in February 2019 from 3.10% observed in January 2019. Trajectory of one year ahead business inflation expectations is presented in Chart 1. 
  • Uncertainty of business inflation expectation in February 2019, as captured by the square root of the average variance of the individual probability distribution of unit cost increase, has further increased to 2.34% from 2.21% observed in January 2019.

Chart 1: One year ahead business inflation expectations (%)

  • Respondents were also asked to project one year ahead CPI headline inflation through an additional question using a probability distribution. This question is repeated every alternate month, coinciding with the month of RBI’s bi-monthly monetary policy announcement.
  • Survey results indicate that businesses in February 2019 expect one year ahead CPI headline inflation to be 3.30% (down from 3.83% observed in December 2018 and 4.07% observed in October 2018), with a relatively low standard deviation of around 1.00% (Chart 2).

Chart 2: Expected CPI headline inflation (one year ahead) – mean probability (%) distribution


  • Regarding cost perceptions, around 54% of the firms in February 2019 reported that increase in costs has been more than 3% (up from 52% reported in January 2019) during the last one year (Chart 3).
  • The proportion of firms perceiving significant cost increase in February 2019 has increased to 27% as compared to 24% in January 2019.

Chart 3: How do current costs per unit compare with this time last year? – % responses

Sales Levels

  • In February 2019, nearly 56% of the firms in the sample reported that sales are ‘somewhat or much less than normal’[1]  (Chart 4). However, the proportion of firms that reported ‘much less than normal’ sales has declined to 27% in February 2019.

Chart 4: Sales Levels – % response

“Normal” means as compared to the average level obtained in the preceding 3 years.

Profit Margins

  • The proportion of firms in the sample reporting ‘normal or greater than normal’ profit margins has declined to 38% in February 2019 from 40% in January 2019 (Chart 5). This is primarily due to the increase in the proportion of firms reporting ‘much less than normal’ profit in February 2019.

Profit Margins – % response