IIM survey: Businesses' estimates for inflation fell below 6% in May

5 Jul 2022 , 02:59 PM

One-year ahead inflation estimates of Indian firms drastically decreased to 5.58 percent in May from 6.02 percent in April, according to the Business Inflation Expectations Survey (BIES) by the Indian Institute of Management-Ahmedabad (IIM-A), which was published on July 5.

According to the survey study, there are early indications that corporate inflation expectations will begin to decline after staying near to or over 6 percent from January to April 2022.

However, the Monetary Policy Committee (MPC) of the RBI stated that “calibrated monetary policy action is needed to keep inflation expectations anchored and control the expansion of price pressures” in its statement on June 8 when it announced a 50-basis-point rise in the repo rate.

Economists anticipate that the committee will continue raising the policy rate until it reaches at least 5.5 percent from the current 4.9 percent when it meets again in August.

Before the coronavirus outbreak in early 2020, inflation was a worry. The most recent headline retail inflation rate for May was 7.04 percent, above the RBI’s medium-term objective of 4 percent for the 32nd consecutive month. It also exceeded the 6 percent upper bound of the tolerance range of 2 to 6 percent for the fifth consecutive month.

In reality, according to the central bank’s most current inflation predictions, the MPC won’t fulfill its obligation when the Consumer Price Index (CPI) statistics for September are made public in the middle of October. When average CPI inflation exceeds the 2—6% tolerance zone for three consecutive quarters, the MPC is considered to have failed.

Policymakers utilize inflation expectations to determine where prices are likely to go in the future, even though predictions are important factors in the formulation of monetary policy. The BIES is one of only two polls performed in India to gauge inflation expectations, the other being the RBI’s Inflation Expectations Survey of Households, making measuring expectations challenging.