Inflation Seen Staying Below 5% Over Next Year, IIM Ahmedabad Survey Finds

Inflation is expected to remain below the 5% mark over the coming year, according to the latest Business Inflation Expectations Survey (BIES) conducted by IIM Ahmedabad. More than 1,100 companies, largely from the manufacturing sector, participated in the survey conducted by the institute’s Mishra Centre for Financial Markets and Economy.

Companies Expect Production Costs To Rise 4.84%

The 112th round of the BIES, completed in August, found that companies expect their production costs to increase by an average 4.84% over the next year.

The figure was slightly lower than the 4.94% projected in July. Companies’ expectations of production-cost increases have remained below 5% for three consecutive months.

The survey sought responses from businesses rather than individual consumers, providing an indication of how companies view future cost pressures and inflation.

Consumer Inflation Expectation At 4.63%

Companies estimated that consumer-facing inflation would be 4.63% over the coming year, compared with 4.56% in June.

The survey therefore points to relatively moderate overall inflation expectations, even as businesses continue to anticipate higher input and production costs.

Fewer Companies Report Steep Cost Increases

The proportion of companies expecting or reporting a production-cost increase of more than 10% declined from 21% to 16%, according to the survey.

At the same time, the share of companies reporting cost increases in the 6% to 10% range rose from 23% to 25%.

The figures indicate a reduction in the number of companies facing or anticipating very sharp cost increases, while moderate cost pressures remain prevalent across the industrial sector.

Sales Show Third Consecutive Month Of Improvement

The survey also recorded a gradual improvement in companies’ sales performance.

In August, more than 53% of companies reported sales at normal or above-normal levels, compared with 50% in July. This marked the third consecutive month of improvement in the sales indicator.

Profitability also showed signs of recovery, although a substantial proportion of companies continued to report weaker-than-normal profits.

In May, 78% of companies said their profit levels were below normal. By August, the proportion had declined to 68%.

Cost Pressures Remain Despite Improving Business Indicators

The survey presents a mixed picture of the industrial economy. Companies expect inflation to remain below 5% over the next year, while the proportion facing moderate cost increases remains significant.

At the same time, the gradual improvement in sales and the reduction in the share of companies reporting below-normal profits suggest some improvement in business conditions.