Inflation tumbled to a 30-year low of 0.27% for the week ended March 14. It is expected turn become negative in the coming weeks, even though the Reserve Bank of India governor D Subbarao said India would not face sustain deflation. Deflation refers to negative inflation coupled with falling demand. The RBI will respond appropriately to the inflation situation, Subbarao said. Bankers expect the RBI to hold onto its policy rates.
The government said the fall in wholesale price index (WPI) based inflation was more to technical reasons, while Subbarao said the Consumer Price Index (CPI) is still elevated. ?WPI (wholesale price index) is coming down. But CPI (consumer price index) is still elevated. There are four measures of consumer price index. Some of them are still in double digits. There is no fear of sustained deflation in India. Our inflation condition is healthier. There is no concern of our getting into deflationary cycle,? Subbarao said.
Despite a fall in the inflation rate, bond yields surged above 7% on Thursday after the government announced its plan to borrow Rs 2,41,000 crore in the first six months of the next fiscal. The 30-share BSE Sensex ended up 3.47% at 10,003.10 points and the 50-share NSE index ended up 3.28% at 3,082.85 points on Thursday. The 0.17 percentage point decline in inflation from 0.44% during the week ended March 7 was attributed partly to a high base effect as the rate of price rise was 8.02% per cent in the same period a year ago. ?This is not because of lack of effective demand. It is due to the base effect and that is not something which we are unaware of, not something which we are not factoring (in),? Ashok Chawla, secretary, department of economic affairs said.
?I think inflation coming down to almost zero is not an encouraging trend,? Tata Sons Ltd Director Jamshed J Irani said on sidelines of CII seminar. Despite the fall in the WPI inflation, the retail prices have not fallen, he said. For example, food prices in the primary articles group (which are not processed) rose 0.1% on a weekly basis and a whopping 7.10% on a yearly basis. In the manufactured category (processed variety), food prices increased 1.2% on a weekly basis and 6.63% year-on-year.