For 3rd straight month, businesses stick to 6%-plus inflation expectation for next year

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For the third straight month in April, Indian businesses anticipated the inflation to be above 6 percent a year ahead, according to a survey by the Indian Institute of Management-Ahmedabad (IIM-A).

The IIM-A Business Inflation Expectations Survey (BIES), released on June 2, showed one-year ahead inflation expectations edged down slightly to 6.02 percent in April from 6.12 percent a month back.

"The cost perceptions data indicates persistence of high cost pressures. Over 66 percent of the participating firms in the survey perceive a significant (over 6 percent) cost increase for the consecutive three months," the survey noted. "Over 36 percent of the firms in April 2022 round of the survey perceive that costs have increased very significantly (over 10 percent)."

This is the fourth consecutive month in which more than 36 percent of respondents have reported a more than 10 percent rise in costs.

The survey's results come days before the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) sits down to decide on interest rates.

The committee's decision, due on June 8, is widely expected to be another repo rate hike of anywhere between 25 basis points and 75 basis points after the policy rate was raised by 40 basis points on May 4.

Data released three weeks before the MPC meeting showed the Consumer Price Index (CPI) inflation jumped to 6.95 percent in March - well above the 6 percent upper bound of the central bank's 2-6 percent inflation tolerance range. A few days after the repo rate was hiked on May 4, government data showed CPI inflation rose even more to 7.79 percent in April.

In its statement on May 4, the MPC had said elevated inflation levels warrant "resolute and calibrated steps to anchor inflation expectations and contain second round effects".

Anchoring inflation expectations is said to be critical to ensure price stability. In an interview to Moneyontrol earlier this month, IIM-A Professor Abhiman Das, who conducts the BIES, had said inflation expectations of Indians have already snapped loose.

The BIES is one of only two surveys conducted in India to measure the inflation expectations, with the other being the RBI's Inflation Expectations Survey of Households.

Some of the other findings of the BIES were:

* Around 28 percent of businesses  - the highest in five years - reported sales were 'about normal' in April.

* For the fourth consecutive survey round, more than 77 percent of businesses reported 'much less than or somewhat less than normal' profit. 'Normal' in this context is the average for the preceding three years, excluding the Covid-19 period.

The latest results of the BIES, which largely polls manufacturing companies, are based on the responses of around 1,000 companies. Most of these responses were received in the second half of May.