- One-Year ahead inflation expectation dips 7 bps in January 2026
- Cost pressures turn polarised as ‘significant increase’ responses jump
- Sales and profit margins remain subdued, signalling demand stress
NE ECONOMIC BUREAU
AHMEDABAD, MAR 4
India’s business inflation outlook softened marginally in January 2026, even as uncertainty and cost pressures showed renewed signs of strain, according to the latest Business Inflation Expectations Survey (BIES) conducted by the Misra Centre for Financial Markets and Economy at Indian Institute of Management Ahmedabad.
Inflation Expectations: Marginal Dip, Rising Uncertainty
The one-year ahead business inflation expectation in January 2026 declined by 7 basis points to 4.29%, down from 4.36% in December 2025, based on the mean of individual probability distributions of unit cost increases.
Importantly, firms’ average inflation expectation over the past 12 months has remained anchored around 4.11%, suggesting medium-term stability despite short-term volatility.
However, uncertainty around inflation expectations widened sharply. The survey notes that the uncertainty — measured as the square root of the average variance of the individual probability distribution of unit cost increase — rose significantly to 2.11% in January 2026 from 1.84% in December 2025.
Cost Pressures: Moderate Overall, But Polarised Trends
Cost perception data for January 2026 indicate a moderate increase in overall cost pressures, though responses reveal a clear shift in distribution.
The percentage of firms reporting costs “up somewhat” (1.1% to 3%) declined to 23% in January 2026, compared with 28% in December 2025 (Chart 2).
At the same time, firms reporting costs “up significantly” (6.1% to 10%) increased notably to 19%, up from 13% in December 2025.
This divergence signals intensifying cost stress among a segment of firms, even as moderate cost increases become less widespread.
“How do current costs per unit compare with this time last year?”
Sales Levels: Demand Remains Subdued
Firms’ sales expectations remained muted and largely unchanged during the November 2025–January 2026 period.
In January 2026, around 56% of firms reported sales as ‘much less than normal’ or ‘somewhat less than normal’, unchanged from December 2025 (Chart 3).
The survey defines “normal” as the average level during the corresponding time point of the preceding three years, excluding the Covid-19 period.
The persistence of weak sales levels indicates that demand conditions continue to weigh on business sentiment.
Profit Margins: Muted Expectations Persist
Profit margin expectations remained under pressure.
The percentage of firms reporting ‘somewhat less than normal’ or below-normal profit margins stayed elevated at around 69% during November 2025–January 2026 (Chart 4).
Overall, profit margin expectations continue to remain muted, reflecting the combined impact of cost pressures and subdued sales performance.
Survey Framework
The Business Inflation Expectations Survey (BIES) captures forward-looking cost expectations through structured probability-based responses. Firms assign percentage likelihoods to potential changes in unit costs over the next 12 months across defined ranges — from cost declines to very significant increases above 10%. The probability values are required to add up to 100%.
The survey also assesses current business conditions across:
- Profit margins (from “much less than normal” to “much greater than normal”)
- Sales levels relative to normal times
- Current costs per unit compared with last year
Together, these indicators provide an early gauge of corporate inflation expectations, demand conditions, cost dynamics, and profitability trends within the Indian economy.
With inflation expectations marginally easing but uncertainty rising and profit margins remaining compressed, the January 2026 BIES presents a nuanced picture: price stability may be anchoring, but demand fragility and cost volatility continue to shape the economic outlook.
