Business inflation expectations fall below 4% for first time in two years: IIMA survey

By A Representative

Business inflation expectations have seen a notable decline, according to the latest Business Inflation Expectations Survey (BIES) released by the Indian Institute of Management Ahmedabad (IIMA) for May 2025. The one-year-ahead business inflation expectation has fallen sharply by 32 basis points to 3.80% in May, down from 4.12% recorded in April. This is the first time in two years that inflation expectations have dipped below the 4% mark.

Despite this downward trend, the survey also highlights a rise in uncertainty. The measure of uncertainty, captured through the variance in the probability distribution of unit cost expectations, increased to 1.95% in May from 1.79% in April, indicating diverging views among businesses.

Cost pressures also appear to be easing. The proportion of firms reporting significant cost increases (above 6%) declined to 26% in May, from 29% the previous month. Meanwhile, firms experiencing a drop in costs rose from 11% in April to 15% in May, suggesting a more favorable cost environment.

However, concerns persist over sales and profitability. The survey reveals that around 58% of firms continued to experience lower-than-normal sales during the March–May 2025 period, with only 28% of firms reporting “about normal” sales—unchanged from April.

Profit margins appear to be under growing stress. Approximately 66% of firms reported profits “somewhat less than normal” or “much less than normal” in May, up from 62% in April. The percentage of firms reporting “about normal” profit margins fell from 32% to 27% during the same period.

The BIES, conducted monthly, gathers qualitative and quantitative responses from firms across various sectors regarding their cost expectations, sales, and profitability, serving as a critical indicator of business sentiment related to inflationary pressures in the economy.

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