Businesses losing confidence in govt controlling inflation, see margins dropping: IIM-A study

Our Bureau Ahmedabad | Updated on September 14, 2018 Published on September 14, 2018

Latest BIES study shows jump in input costs for July over previous month; highest in four months

In a latest study by the Indian Institute of Management - Ahmedabad (IIM-A), businesses are seen facing increased uncertainty on profit margins owing to a sharp jump in input costs. This is seen as a weakening of the confidence of businesses on the government's ability to rein-in inflationary trends.

The Business Inflation Expectations Survey (BIES) for July 2018 showed a sharp jump in the business inflation expectations —,as estimated from the mean of individual probability distribution of unit cost increase — to 3.8 per cent in July 2018 from 3.1 per cent in the preceding month.

However, the recent sharp depreciation in the rupee is not factored in, according to the survey.

The rise is attributed to the increase in input costs including that of raw materials and fuel as well as the finance cost.

Higher input cost is reflected in the jump in the number of companies reporting disappointing profit margins.

The results derived from the responses of 1,941 companies, showed nearly 43 per cent indicating ‘much less than normal’ profit margins, as against 35.5 per cent in the preceding month — the sharpest jump in the past four months.

Notably, the proportion of companies reporting 'normal or above normal' profit has declined to 32 per cent in July 2018 as against 38 per cent during May-June 2018, which is reflective of the dwindling confidence of businesses.

However, business inflation expectation has remained fairly range bound at 3-4 per cent since May 2017.

The BIES provides ways to examine the amount of slackness in the economy by polling a panel of business leaders about their inflation expectations in the short and medium term.

The survey is unique as it goes straight to businesses– the price setters, rather than to consumers or households, to understand their expectations of the price level changes. BIES can get a probabilistic assessment of inflation expectations and thus can get a measure of uncertainty.

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Published on September 14, 2018
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