Thursday, India's inflation rate for the week ended March 14 declined for eighth consecutive week and plunges closer to zero at 0.27% from the 0.44% in the preceding week, according to the data released by the Ministry of Commerce and Industry. The rate was 8.02% for the corresponding week of the preceding year.
This is the lowest inflation rate since annual records started in 1977-78 and comes seven-and-a-half months after inflation crossed a high of 12% last July. Analysts expect negative readings in inflation by mid-2009.
Data from the Reserve Bank of India's Handbook of Statistics showed that the average WPI in 1975-76 was 1.1%. The International Monetary Fund (IMF) said last Tuesday that it expected the average WPI inflation in fiscal year 2010 to be 1.9%, an indication that the latest inflation number is not a precursor for sustained deflation or falling prices in India.
Going by provisional figures, the wholesale price index or WPI for all- commodities fell 0.1% to 227.0 from 226.7, the week before.
Inflation, based on the wholesale price index, dropped due to the lower prices of pulses, fuel and some manufactured items covered under all-category groups. This will give room to the Reserve bank of India to take further monetary steps to spur the economy.
The final estimate of inflation for the week ended January 17 was lowered to 4.95% from the earlier provisional figure of 5.64%.
The main index for primary articles rose marginally, due to higher prices of niger seed, raw silk, raw rubber, fodder, fruits and vegetables, bajra, maize, masur, urad and rice. However, the prices of raw wool, logs and timber, fish-marine, tea, castor seed, linseed, condiments and spices as also gram declined.
The index representing fuel, power, light and lubricants was unchanged at its previous week's level of 321.0.
The index of Manufactured Products rose by 0.2%, due to higher prices of zinc ingots, zinc, lead ingots, oil cakes, MS bars and rounds, imported edible oil, other iron steel, basic pig iron and foundry pig iron, while the prices of steel ingots (plain carbon), electric motors (phase one and three), all types bran, rape seed and mustard oil as also coconut oil declined.
The ruling Congress Party claims that the stimulus packages announced by the UPA government over a period of time have yielded the desired results. However, Left parties continue to slam the UPA, headed by the Congress Party, despite low inflation figures, claiming that consumer prices were still high.
Tushar Poddar, an economist with Goldman Sachs, is quoted to have said that inflation would turn negative commencing next month and would remain so until the year-end.
On the other hand, Anil Ladha, head (capital markets) at ICICI Securities, said, From a monetary policy perspective, inflation is not a concern. It is only the growth objective, which will drive monetary policy.
Economists, who have already warned of a deflation in the Indian economy, explain that a lower inflation rate would not necessarily mean that prices had fallen. Lower inflation rate only means the rate of rise in prices has come down, not the actual prices.
Prof T.N. Srinivasan, Professor of Economics, Yale University and Visiting Fellow, Stanford Center for International Development, holds that India's policy response to the economic slowdown seems misdirected and could end up stoking inflation. Listing a few more, he said, the outcome of Parliamentary elections in the next two months is not easy to predict. The worst-case scenario is the possibility of a coalition of diverse regional parties without a coherent economic view, which could have an adverse impact on economic stability.
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