According to Dun & Bradstreet, India may slip into deflation by April 2009, driven largely by higher base effect. But D&B does not expect a pronounced deflationary trend in the Indian economy.
Deflation is a general decline in prices that is often caused by a reduction in the supply of money or credit. Will this deflationary phase in India be temporary or a long and painful phase?
In this respect, it is noteworthy to read a column by Olivier Jeanne (Professor of Economics, Johns Hopkins University; visiting Senior Fellow, Peterson Institute for International Economics and CEPR Research Fellow) proposes the organization of a round of "multilateral consultation", under the auspices of the IMF, on how to avoid worldwide deflation and hence the trap of depressionary spiral. Ineffective fiscal and financial policies mean that attention will inevitably return to monetary policy – policymakers should be prepared. Getting the main central banks to agree on a basic set of principles would reduce the fog of Knightian uncertainty prolonging the crisis. We need a multilateral consultation on how to avoid global deflation
Mr. Jeanne, under head "Monetary policy in a credit crisis", discusses monetary policy-makers should not let the economy become entrenched in a Fisherian debt-deflation spiral. He says "flexible inflation targeting" would be the right thing to do in a credit crunch. A clue for our policy makers to further reduce the rates amidst falling prices?
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According to bloomberg report inflation in India has slowed to a 2-Decade Low of 0.44 Percent. A sharp fall from last week's (March 7)reported no of 2.43 percent.
My conclusion: We will defenately see a deflation soon.
0.44 percent inflation is presumed to be the twenty year low figure.
So it should be interesting to watch for government's move especially in the back drop of fast upcoming elections..........
I am of the view that deflation in India is a statistical blip, due to higher base effect. Deflation in India will be temporary.
From my point of view, fall in WPI is not of much help to common man as the there does not seem to be any major fall in retail prices....
Yes, i agree to Sachin's view but retail prices do fall with a greater time lag!!!
If an year on year inflation rate is observed, food articles are 7.35%, significant positive with cereals and pulses around 11%, fruits and vegetables around 5% and even other food articles than these items are fairly up at 21%.
Further, the manufactured products are up by 1.32% over previous year. Is it a fall of 6% then in fuel, power and light that had brought down the composite inflation for all commodities to 0.44%?
Cosumer price indices are hovering around 11%.Is the country really in deflation? Is the concept of WPI itself determing the rate of inflation-a right measure? Isnt the overall inflation figure looks misleading? To me --Yes! Break up of components reveal some other story. Is it teh weightage of some components that is pretty high and the item has registered a significant fall resulting teh rate to fall record in 20 years...
I feel we need to revise the basket componenst and their weigtages and also the methodolgy to arrive at rates (taking into account CPI as in many developed and developing nations) otherwise we will end up with some misleading figures like 0.44% that experts say will turn to negative by April.
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