Econometric analysis demonstrates that enterprise price sentiments forecast wholesale inflation in Indian manufacturing, highlighting the value of business surveys for monetary policy.
The study investigates the relationship between wholesale price inflation (WPI) and survey-based sentiments of manufacturing firms in India, with the objective of assessing whether enterprise-level price assessments and expectations can serve as reliable leading indicators for forecasting the wholesale inflation. Building on an earlier empirical framework linking WPI with Purchasing Managers’ Index (PMI), the analysis primarily uses diffusion indices derived from various price-related sentiment indicators reported by manufacturers in the Reserve Bank of India’s Industrial Outlook Survey (IOS), while also considering PMI-based indicators for comparison and robustness check. The results show that manufacturers’ assessments and expectations regarding raw material costs and selling prices contain significant information about the future WPI movements, including non-food manufactured products and industrial raw materials. Forecast evaluation further indicates that IOS-based indicators provide useful one-quarter-ahead inflation forecasts. Overall, the findings highlight the importance of enterprise sentiment surveys as forward-looking tools for improving wholesale inflation forecasting in India.
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Shaw et al. (2026) studied this question.
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