Inflations Now stands At 0.44%- Implications And Predictions

20 Mar

Posted by Shyam as Inflation

Inflation has reached an all time low of 0.44%. This is the figure quoted for the week culminating in 7th march. This low figure is being attributed as a function of low food prices, fuel prices and high base effect .The figure quoted this week has been much low as compared to last week’s figure of 2.42%.This is much lower when we reflect upon the scores of last year’s figures. The fuel prices have been witnessing a negative inflation of around 6% which is further expected to plunge. The food prices which had hiked to a ten year high in the initial part for the year has fallen down sharply to single digit figures.

The central bank RBI is expected to bring in liquidity to the market through its monetary policy .Anyways the higher base effect and continued global low demand are further worsening matters. India has already run into too much deep into fiscal deficits; moreover with the elections coming up a miraculous monetary policy can only help country from running into negative inflation figures. In all likelihood we may see a negative inflation figure from April to an indefinite period, hopefully a short one.

A zero inflation rate may usher along with it a high risk of roping the economy into a deflation. There would be decrease in prices and liquidity would dry out resulting in wage fall and then demand would fall further. Ultimately goods production scale would further decrease leading to large scale unemployment. It is very difficult for RBI to boost liquidity in these conditions because investors would not go for high risk projects in these conditions and interest rates cannot be offered which is a negative one. As a general thumb rule a 2% inflation is healthy for any economy .A 0% inflation can pull the economy into uncertain terrains of uncertainty, instability and unpredictability.