India’s inflation rate falls eighth straight week to 0.27 percent (Roundup)

March 26th, 2009 - 3:52 pm ICT by IANS  

New Delhi, March 26 (IANS) India’s annual rate of inflation declined for the eighth straight week and dropped to another historic low of 0.27 percent for the week ended March 14, as against 0.44 percent for the week before, official data showed Thursday.
The drop was mainly on account of a relatively higher rise in the official wholesale price index during the corresponding week of last year, as between March 7 and 14 the index rose 0.1 percent, data released by the commerce and industry ministry showed.

Among the three main commodity groups, the index for the manufactured products rose 0.2 percent, while that for primary articles registered a small increase. But the index for fuels remained unchanged over the week.

Economists, who have already warned of a deflation in the Indian economy, explain that lower inflation rate does not necessarily mean that prices have fallen. Lower inflation rate only means the rate of rise in prices has come down, not the actual prices.

Deflation is a decline in the general price level. It is caused by factors such as low money supply and credit, and a curb in spending by households, industry or government. The lower demand during deflation often leads to a rise in unemployment levels.

D.K. Joshi, principal economist at credit rating agency Crisil, said the economy would see inflation going below zero in next two-three weeks.

“The continuous decline in the rate of inflation is due to the fact that the prices are correcting very sharply and also due to a high base last year. We can also expect the price in consumer price index to fall to single digit soon,” Joshi told IANS.

He maintained that a negative inflation rate of 2-3 percent would be temporary and said the lower rate of rise in prices was the result of fiscal and monetary measures taken by the government and the central bank, as also cyclical factors.

Dalip Kumar, the head of projects at the National Council of Applied Economics Research (NCAER), a Delhi-based think tank, said despite the slower rise in the wholesale price index, consumers have not really benefitted.

“It is the wholesale inflation that has come down. Retail prices continue to rise at much higher levels. So, consumers are yet to reap the benefit of lower inflation,” he pointed out.

The Associated Chambers of Commerce and Industry (Assocham) has said India can see a little more economic expansion and more jobs being created, even in these times of meltdown, if the Reserve Bank of India takes the fullest advantage of a low inflation.

Among the measures it has suggested include a cut in prime lending rates for agriculture and infrastructure projects at 10 percent from the present 15 percent, so that the sluggish demand can be revived.

“Demand stimulation, job creation and expansion of economic activities would be absorbed under current economic circumstances provided the central bank, through a notification, brings down prime lending rate by at least 4-5 percent,” said chamber president Sajjan Jindal. “There is definitely a scope for it.”

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