Strange! One is not sure if one has to
cheer or crib about India striking a negative inflation number—the
wholesale price index fell by 1.61% for the week-ended June 6, 2009, from the
corresponding week of 2008, for the first time since 1978.
Looking at the year-on-year rise in the prices of items of daily
usage—the wholesale price index for food grains,
in the week-ended June 6, went up by 14%; it rose by
12.5% for processed food items like ghee, sugar, etc. and
by almost 10% for fruits and vegetables; and
further, it is believed that the prices of essential
commodities such as wheat, rice and sugar will continue to be dearer, till at least the
arrival of next crop, which is around September—_no one is in the mood of cheering
at the fact of our wholesale price-based inflation figure falling into negative zone.
Nor are they willing to attach any significance to this historical negative inflation
figure, for the increase in minimum support price that the government
has announced for wheat and paddy is sure to keep the
prices of these essential products high till at
least the next season.
There is yet another shade of this negative inflation doing rounds
among the economists: it is dubbed as a mere statistical phenomenon resulting
from the high base effect caused by the high prices that prevailed last year. The
rise in WPI for the week ended June 7, 2008 stood at 11.7%, which was more due
to the then mounting global crude oil prices. But crude prices fell by almost 50%
by June 2009. This resulted in a negative price rise of 12.83% in the oil
component of WPI, as against last year's 16.25%. Similarly, inflation under
manufactured goods segment fell from a high of 10%
in 2008 to zero by June 2009. Indeed, looking at the drastic changes happening
in the global economy since the second half of 2008—fall in asset prices, collapse
of banks and recession that has set in global economy—many tend to believe
that the declining trend in inflation may continue for a few more weeks. Hence,
many economists dismiss it as having no impact on the country's growth rate or
its monetary policy.
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