Businesses’ CPI Inflation Outlook For One-Year Increases To 5% In August: IIM Survey

The survey gauges inflation expectations of companies and asks businesses to give an outlook of the Consumer Price Index (CPI) inflation one year down the line in alternate months.

This inflation outlook coincides with the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) meetings, which are held bi-monthly. 

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Businesses’ outlook of headline retail inflation for the upcoming year increased sharply to 5 per cent in August, from the earlier prediction of 4.56 per cent in June, the latest Business Inflation Expectations Survey (BIES) of the Indian Institute of Management - Ahmedabad (IIM-A) revealed. The survey gauges inflation expectations of companies and asks businesses to give an outlook of the Consumer Price Index (CPI) inflation one year down the line in alternate months. This outlook coincides with the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) meetings which are held bi-monthly. 

The RBI MPC began on Wednesday, October 4, morning and the committee’s decision on the interest rate will be announced on Friday, October 6, this week. Experts largely believe that the RBI will maintain the policy repo rate at 6.5 per cent for the fourth consecutive time, reported Moneycontrol. 

However, economists expect the banking regulator to give an elevated inflation forecast for the current fiscal year by 20 to 30 basis points, following the CPI inflation touching a 15-month high of 7.44 per cent in July and easing to 6.83 per cent in August. Notably, one basis point is a hundredth of a percentage point. 

The report noted that the September numbers, set to be announced on October 12, are expected to further decline but could potentially stay above the upper limit of the RBI’s 2-6 per cent tolerance band for the third consecutive month. 

Ratings agency CareEdge stated that inflation will surpass the RBI’s projections for July-September by about 60 basis points and the banking authority will update it’s full-year projection to 5.6 per cent from it’s earlier number of 5.4 per cent. 

The report quoted Abhiman Das, economics professor at IIM-A who conducts the survey and said, “The recent spurt in CPI inflation has limited impact on firms' inflation expectations. In fact, the average inflation expectation of the firms remained anchored around 4 percent for the past four consecutive months.”

The survey, based on mostly manufacturing firms, includes the responses from nearly 1,000 companies. Notably, inflation expectations are eagerly observed by policymakers, as managing them is key to ensuring stability in price. Earlier in August, the MPC noted that it remained ‘resolute in its commitment to aligning inflation to the target and anchoring inflation expectations’.

The IIM-A survey is one of the two surveys conducted in the country to measure inflation expectations. The other one is the RBI’s Inflation Expectations Survey of Households. The latest results of this survey, released in August, displayed that both the three-month-ahead and one-year-ahead inflation expectations of households declined by 10 basis points each to 10 per cent and 10.3 per cent in July.