India Enters Deflation for the First Time in 30 Years
Jun. 19 – For the first time in 30 years, India’s wholesale price index dropped by 1.6 percent, slipping the economy into a statistical deflation.
India’s wholesale prices levels declined during the week ending June 6. During the previous week, prices increased by 0.13 percent. The wholesale price index monitors cost-of-living indicators.
Industry insiders and officials say a decline does not automatically mean a change in demand. The finance ministry’s top official, Ashok Chawla, told the Financial Times, that the price drop did not signify a deterioration in India’s overall economic conditions, however, nor would it lead to any shift in economic policy.
“These numbers do not reflect any contraction of demand,” he said. “In fact, we are doing well and the country is on the path of improved economic performance.”
The chief economist at Citigroup, Rohini Malkani, told the FT that the declining price levels were largely statistical and caused by the sharply lower fuel prices. However, she said India still faced inflationary pressures. “You will see negative numbers for the following weeks, but by year-end we do expect inflation to go back to around 4 per cent,” Malkani added. “It’s not like deflation because of no demand and people slashing prices.”
It was only a year ago that India was struggling with 13 percent inflation. Currently, while wholesale prices have fallen from peak levels, consumer prices are still higher by 8 percent compared to last year because of the forecast of a bad harvest.
In March, the economy expanded by 6.7 percent still a sharp decline from the 9 percent average annual growth of previous years.
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