- Business Inflation Expectations ease sharply to 5.13% in May even as firms report weaker sales and shrinking profit margins
- Monthly BIES by IIMA’s Misra Centre signals easing cost pressures but heightened uncertainty over business demand and profitability
NE ECONOMIC BUREAU
AHMEDABAD, JULY 4
India Inc’s inflation outlook softened markedly in May 2026, but the optimism was overshadowed by mounting concerns over weakening demand and shrinking profitability, according to the latest Business Inflation Expectations Survey (BIES) conducted by the Misra Centre for Financial Markets and Economy at the Indian Institute of Management Ahmedabad (IIMA).
Conducted every month, the BIES captures forward-looking assessments of businesses on inflation, costs, sales and profitability, offering an important barometer of corporate sentiment.
Inflation Expectations Cool Sharply
The survey found that one-year-ahead business inflation expectations dropped sharply by 51 basis points to 5.13% in May 2026, compared with 5.64% recorded in April 2026.
Despite the decline, businesses have continued to project inflation above the 5% mark for four consecutive months—a trend not witnessed since August 2022—indicating that inflationary concerns remain embedded in corporate planning.
The survey also revealed that uncertainty surrounding inflation expectations remained elevated, with the square root of the average variance of firms’ individual probability distributions of unit cost increases staying above 2% for the fifth straight month, signalling persistent caution among businesses.
Cost Pressures Present Mixed Picture
Corporate perceptions of input costs reflected mixed trends during May.
The proportion of firms expecting moderate cost increases in the range of 3% to 6% rose to 26%, up from 22% in April, suggesting that more businesses anticipate manageable inflationary pressures.
However, the share of companies reporting that costs had risen “significantly” or above (over 6%) remained virtually unchanged at around 46% for the second consecutive month, highlighting that substantial cost pressures continue to affect a large section of businesses.
Demand Weakens Sharply
Business sentiment on demand deteriorated considerably during the month.
Nearly 65% of surveyed firms reported sales levels as “much less than normal” or “somewhat less than normal”, a sharp increase from 57% recorded in April 2026.
The findings point to a broad-based slowdown in business activity and softer market demand despite easing inflation expectations.
Profit Margins Under Greater Stress
The survey also showed worsening profitability across businesses.
The proportion of firms expecting “somewhat less than normal” or lower profit margins climbed to 78% in May 2026, compared with 72% in the previous month.
Overall, the survey indicates that corporate profit margin expectations have deteriorated further as slowing demand continues to outweigh the benefits of moderating inflation.
The latest BIES findings suggest that while inflation expectations are gradually easing, Indian businesses remain concerned about weak consumption, subdued sales and persistent pressure on earnings, underscoring the uneven nature of the country’s economic recovery.
