Goodbye inflation, hello deflation!
With
inflation already at an almost seven-year low of 2.43 per cent in
February, it’s apparent now there would certainly be a period of
negative inflation (or deflation) later this year resulting from the
high inflation base of the previous year. “It is reasonable to expect
deflation by April this year,” Siddhartha Sanyal, vice-president of
research at Edelweiss Securities said. Stressing that inflation had
almost hit the 8-per cent mark by end-March last year, Sanyal said
inflation would almost surely turn negative some time in the first
quarter of the next fiscal year.What is surprising now, however, is not
the imminence of deflation, but the possibility of negative inflation
persisting for a good six months. Sanyal, however, believes deflation
could easily last about six months corresponding to the long phase of
double-digit inflation last year set off by the hike in petrol and
diesel prices by the government. “Deflation could easily last through
the first half of the next fiscal with a turnaround in the second
half,” he said.The wholesale price index (WPI), the main index used to
measure inflation, stood at 227.8 point in April last year and rose
sharply over the next few months to peak at 241.7 in early September.
Correspondingly, the WPI currently stands at 227.7 as per provisional
figures issued by the department of industrial policy and promotion and
has been falling more or less continuously since September. If it
continues the trend, the index levels could go significantly lower than
those in the corresponding period last year leading to sustained
deflation.Negative inflation, which usually has severe implications for
the economy, may not affect the Indian economy in the long run.
“Looking at inflation in India over a one-year or two-year window, it
would still come out to around 4-5 per cent,” said Sanyal. Adding that
prices of a lot of commodities like food articles and certain other
industrial inputs are still rising gradually, he said deflation is not
a grave concern for India since it is largely technical deflation
rather than a structural problem.
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