Deflation On Inflation...

In simple layman terms deflation connotes a contraction in the general price levels. As the inflation has fallen to a 30 year low of 0.44 %, which is now turning out to new darker clouds of deflation from inflation on India. The skyrocketing inflation has come to an end for now but had put us into new worrisome shoes in this dis-inflationary environment is a fallout of the drop in commodity prices, rollback in production and weakening demand. Such a sudden and frenzied fall in inflation numbers brings to another worry, namely Deflation.

For general consumers food grain prices are still holding high, vegetable prices have gone down lower on diesel prices. The decline in prices of food articles, fuel and metals has pushed the WPI to strange lows in March, 09. Mainly consumers and manufacturers defer spending, trying to cut production costs by either firing workers or employees which entirely leads to drop in demand and further fall in prices. Deflation has a deep and harsh impact on the economy. As companies are forced to sell their products at reduced prices along with reduce out their margins, which indirectly threatens job loss and pay cuts which is a cause of worry.

There is still a room of scope and joy as the Consumer Price Index (CPI), which is a reflector of retail prices at the end-consumer level, held firm at 10.45%. Along with that Oil prices has again started soaring in international market along with that all time gold prices will bring some respite to the commodities market. Along with that this was just on week figures so deflation has not officially entered Indian Economy. I believe both RBI & Present government won't give easy permission giving out more scope to debt to expand from now onwards for a medium term. So folks don’t panic…..

Credits - Manik Gursahani

Ref. - Business Line