Zero Inflation!!!......A truth finally...

Long have been Inflation troubling India, now it’s the turn of Deflation..
Inflation for the week ended 28 February was recorded to be 2.43%.
Few points that I stumbled upon in these few days..
Firstly, the wholesale price index (WPI) for that week stood at 227.7, lower than the 227.8 recorded for the week ended April 5 last year. That means unless the index rises in the next five weeks, the rate of inflation will turn negative. Also, with the rabi harvest round the corner, a fall in the general price level would not be surprising.
Secondly, The reason nobody's cheering is that your shopping cart items are not getting any cheaper. The indices for food articles and foodgrains are 8% and 11% higher than a year ago, respectively. In other words, while the average rise in prices of all commodities that constitute the WPI has been less than 2.5%, these essential consumption items have seen a sharp rise in prices over the last year. As the relative less well-to-do sections spend most of their income on food, the inflation they actually feel will be closer to 8% than to 2.5%. For the bottom rung of the population, which spends almost 90% of its income on food, the situation is particularly bad. Even the lower middle class families spend almost 60% of their income on food items, the prices of which continue to rise.
Thirdly, The government, however, has more reason to worry. Even as inflation in food articles remains high, prices of industrial products have been declining. The index for organic and inorganic chemicals has fallen by 20.8% over the last year and that for non-ferrous metals by 9.7%. This clearly means that the demand for most of the industrial items is declining due to the bleak economic outlook and hence the businessmen and investments in this section will shy away or rather businessmen have already started searching for safer havens. IIP(Index for Industrial Production) is going to get a further knock and this time in the gut.
Fourthly, falling inflation will raise the demand for the treasury bonds and hence many might report capital gains and Banks, but ofcourse becomes a good pick for the coming week or so. Capital gains on bonds will lead to decline in the T bill interest rate and hence the Indian economy can expect a further rate cut from RBI. And subsequently rate cuts from all the leading banks. This leads to realty also being a very good pick.

By
Riddhiman Jain.
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