Ram Posted June 22, 2009 Posted June 22, 2009 Indian inflation turns negative Inflation in India has turned negative for the first time in more than 30 years, official figures have shown. Wholesale prices fell 1.61% in the year to 6 June, compared with a rise of 0.13% the previous week, the Ministry of Commerce and Industry said. Cheaper food prices dragged the index down, and analysts said prices could continue falling for about four months. It marks the first annual decline in wholesale prices since the government started releasing weekly data in 1977. "We will have negative numbers at least till September, primarily because inflation had picked up very sharply during this period last year," said Sonal Verma, an economist at Nomura. Inflation hit a 13-year high of 12.9% in August 2008, but has been decelerating steadily since http://news.bbc.co.uk/2/hi/business/8106534.stm ------------------ That is amazing, I dont think I've ever seen something like that happen in India!
varun Posted June 22, 2009 Posted June 22, 2009 Should pick up again in a year or so after the economy gets back on track (hopefully)
Lurker Posted June 22, 2009 Posted June 22, 2009 Good to see this. Inflation has been killing the aam janta of India, lets hope this is a sign of times to come. One good thing to come out of this recession is falling prices. In real estate it has made a big difference with people who had given up on housing dreams actually being able to buy a home. The flip side is people with extra cash are now buying houses as investment to sell it later. Guess it is hard to stick to morals these days.
The Outsider Posted June 22, 2009 Posted June 22, 2009 Inflation in India is calculated on completely messed up parameters - for example electronics form one of the major indices in calculating inflation. Now if the price of a laptop or Plasma TV drops 50%, how does it effect the common man. Essentials like wheat, rice, and sugar are calculated on the price of ration shops and not the market rate. How does that portray the reality? Take inflation/deflation figures of India with a huge truck load of salt(the market price one/not the ration shop).
Ram Posted June 22, 2009 Author Posted June 22, 2009 Really looking forward to seeing 2nd quarter numbers for India, that should give us a good indication of where our country stands vis-à-vis the recession
umpire Posted June 23, 2009 Posted June 23, 2009 what negative inflation, Potatoes were 15 Rs per Kg today 50% increase in 2 days. :winky:
Gambit Posted June 24, 2009 Posted June 24, 2009 Inflation in India is calculated on completely messed up parameters - for example electronics form one of the major indices in calculating inflation. Now if the price of a laptop or Plasma TV drops 50%' date=' how does it effect the common man. Essentials like wheat, rice, and sugar are calculated on the price of ration shops and not the market rate. How does that portray the reality? Take inflation/deflation figures of India with a huge truck load of salt(the market price one/not the ration shop).[/quote'] Yeah. The basket of commodities in WPI needs to be revised. We are experiencing deflationary trends but the economy isn't in full blown deflation yet. From what I understand, deflation is harmful to a developing economy as it leads to consumers holding back on spending as they anticipate further decrease in prices leading to firms reducing production leading to job losses, lack of capital etc.
suraj Posted June 24, 2009 Posted June 24, 2009 Yeah. The basket of commodities in WPI needs to be revised. We are experiencing deflationary trends but the economy isn't in full blown deflation yet. From what I understand, deflation is harmful to a developing economy as it leads to consumers holding back on spending as they anticipate further decrease in prices leading to firms reducing production leading to job losses, lack of capital etc. Check history of Russia and downfalls of deflation will become evident
Lurker Posted June 24, 2009 Posted June 24, 2009 Just a shot in the dark but maybe this is also related to the unfavorable weather conditions that seems to be staring India in the face. Our economy is heavily dependent on Agriculture and hence monsoons. With bad monsoon scenario negative inflation could very well be an indicator of times to come.
Ram Posted June 24, 2009 Author Posted June 24, 2009 We need a recession every once in a while, it keeps everyone honest and protects the value of the currency. As Peter Schiff often mentions, 'Boom is the problem, bust is the solution.' Price drops due to deflation are important, especially in a country like India where a big portion of the population survives on less than $2/day. For these people, even a 2 or 3 rs drop in vegetable or fuel prices means a lot. Of course, Recession is NEVER a welcome pattern, but we need the system to detox itself of all the discrepancies that may have sneaked into it, while everyone was partying during the boom.
seedhi Posted June 24, 2009 Posted June 24, 2009 Just a shot in the dark but maybe this is also related to the unfavorable weather conditions that seems to be staring India in the face. Our economy is heavily dependent on Agriculture and hence monsoons. With bad monsoon scenario negative inflation could very well be an indicator of times to come.??? Bad monsoon will push up the prices of food items through the roof - so inflation can increase I think.
Ram Posted June 24, 2009 Author Posted June 24, 2009 Just a shot in the dark but maybe this is also related to the unfavorable weather conditions that seems to be staring India in the face. Our economy is heavily dependent on Agriculture and hence monsoons. With bad monsoon scenario negative inflation could very well be an indicator of times to come. We grew right through the 90s and early 2000s, bad monsoon or the good monsoon. Agriculture is not a major factor in our economy any more. As a job creator yes, it is big. But as an economic driver of things, it has been overshadowed by Manufacturing and services a long time ago.
THX_1138 Posted June 30, 2009 Posted June 30, 2009 My next to insignificant knowledge of economics tells me that a negative inflation rate suggests that the producers are either not benefiting adequately, or the markets are flooded with goods that outstrip the demands... There were the precursors to the 1929 crash of the American economy, so i suggest caution rather than jubilation! the age old urban legend that inflation hurts the poor man is not completely precise. a small percentage of the increasing price is passed onto the primary producer, though with the number of middlemen, the percentage is not high enough.
vipin Posted June 30, 2009 Posted June 30, 2009 I think its just a case of hoarders having hoarded up stuff before the just concluded elections, that they are now releasing in the market.
THX_1138 Posted June 30, 2009 Posted June 30, 2009 I think its just a case of hoarders having hoarded up stuff before the just concluded elections' date=' that they are now releasing in the market.[/quote'] that would be counter intuitive. please! do not indulge in fanciful talk just because it is traditional to make such accusations. the idea of hoarding is to drive up demand and limit supply. thus, drive prices up. i.e. a high rate of inflation. moreover, these allleged hoarders would release the goods on the markets in a trickle, thereby maintaining high prices, but not completely eliminating supply, lest the demand evaporates. the hoarders would be engaging in self destructive behavior if they were to flood the market with the goods the held back. heck, they would in fact lose a lot of money if indeed they did what you are suggesting. (i dont intend to be too critical, just pointing out some urban legends)
Guest Gunner Posted July 1, 2009 Posted July 1, 2009 Yeah. The basket of commodities in WPI needs to be revised. We are experiencing deflationary trends but the economy isn't in full blown deflation yet. From what I understand, deflation is harmful to a developing economy as it leads to consumers holding back on spending as they anticipate further decrease in prices leading to firms reducing production leading to job losses, lack of capital etc. Check history of Russia and downfalls of deflation will become evident My next to insignificant knowledge of economics tells me that a negative inflation rate suggests that the producers are either not benefiting adequately, or the markets are flooded with goods that outstrip the demands... There were the precursors to the 1929 crash of the American economy, so i suggest caution rather than jubilation! the age old urban legend that inflation hurts the poor man is not completely precise. a small percentage of the increasing price is passed onto the primary producer, though with the number of middlemen, the percentage is not high enough. Evidently, deflation is counter productive to developing economies as it limits growth due to lack of spending. However this is not strictly the case in all situations. The case of the Russian deflation is inherently incomparable with India becuase the GDP of Russia contracted by IIRC 60% in the post USSR scenario. Similarly the pre-1929 scenario in the US was quite different as well. The deflation was driven by significant amount of losses on the stock market (i.e. people just didn't have any money) and large scale unemployment. None of this is endemic to the current Indian situation. In India a medium term deflation would help in downsizing the asset inflation created in the last 4 years and might help to reduce the excesses of our previous boom cycle. To simplify let us just call it a "correction". If however we have long term deflationary trends it would lead to slower growth, job losses and eventually a very serious recession. However I don't expect this. What is happening in India currently is quite the same as the overall global trend of low inflation to deflation trends.
The Outsider Posted July 1, 2009 Posted July 1, 2009 that would be counter intuitive. please! do not indulge in fanciful talk just because it is traditional to make such accusations. the idea of hoarding is to drive up demand and limit supply. thus, drive prices up. i.e. a high rate of inflation. moreover, these allleged hoarders would release the goods on the markets in a trickle, thereby maintaining high prices, but not completely eliminating supply, lest the demand evaporates. the hoarders would be engaging in self destructive behavior if they were to flood the market with the goods the held back. heck, they would in fact lose a lot of money if indeed they did what you are suggesting. (i dont intend to be too critical, just pointing out some urban legends) That would be the ideal scenario for hoarders, but it doesn't always work that way. If even after hoarding they were unable to drive the prices up - as it happened in these elections, they would be left with a lot of perishable stuff occupying their storage and would be forced to off load it at lower prices. Your scenario assumes hoarders are always successful, but in fact that is not the case.
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