Inflation
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    • Inflation

    Shweta Sakariya

    Fundamental analyst

    Inflation

    Inflation was at 2.43% which was at 6 years low. And now its at 0.44% which is at all time low. Inflation has been falling since month of September. It peaked to 13% till August 2008.When prices fall in a sustained manner it results into situation of deflation. And deflation would mean that there can be downfall in prices of various commodities. If you postpone your purchase you can get those products at cheaper rates. Take example of DVD player’s machines etc. If the situation of deflation arises and everybody postpones the plan of purchase, thinking that the products will be available at cheaper rates, the stock would get piled up. The case of recession is that there is no over production, the production remain the same but the consumption reduces.

    The prices not going down:

    The inflation rate slow down at faster pace but the effect was not seen in the prices of commodities at the rate which inflation have come down. The prices of food articles and vegetables have not been found going down than what is the sense of bringing down the inflation.

    Items in Inflation:

    Inflation is being announced by government by every Thursday is based on Whole Price Index (WPI). It includes mostly manufactured items, steel, metals, petrol, diesel, etc. That's why the WPI-based inflation is down, since price of metals and oil has dipped by more than 50 per cent in the past few months.

    But the inflation experienced by the aam admi is based on the Consumer Price Index (CPI). It includes mostly food items, and also some services like school and tuition fees, transportation costs and medical fees. The CPI-based inflation is reported only once a month.

    Tears for government:

    In the past, both BJP and Congress-led governments came to tears due to rising onion prices. In last year there was attack on inflation, RBI raised the interest rates, the rupee was made stronger to mitigate the impact of expensive imports, import duties were cut, and the government even hinted at price controls for cement and steel. The greater threat is rising unemployment, the industrial production numbers getting down. The various fiscal stimulus package were announced and monetary actions are being taken by government as they have reduced the service taxes and various import duty have been reduced. With inflation coming down also the GDP rate has come down. The economy registered a growth of 5.3 per cent in the third quarter (October-December 2008), down from 8.9 per cent in the corresponding period last year. Recently, the RBI cut the repo and reverse repo rates by half a per centage point each with immediate effect. With this, the repo rate - the rate at which the RBI lends short-term funds to banks - stands at 5%. And reverse repo at 3.5%. Rate cuts might accelerate the process of bringing in a low interest rate regime, which will help in the speedy recovery of the economy. Since mid-September, the RBI has gradually reduced key policy ratios and rates to inject about Rs

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