Thursday June 18, 04:05 PM
India enters deflation as economy slows
By Ben Sheppard
NEW DELHI (AFP) - India's annual inflation rate slipped into negative territory for the first time in 30 years, official data showed Thursday, with the country's slowing economy cutting into demand.
Inflation stood at minus 1.61 percent for the week ended June 6, down from 0.13 percent the previous week, according to the Wholesale Price Index, India's most watched cost-of-living measure.
The index in August touched a 13-year high of 12.9 percent but a period of deflation had been expected as rates tumbled, reflecting weak growth in Asia's third-largest economy.
The price crash was also a result of diving commodities costs, analysts said.
"To a great extent, inflation has fallen due to industrial activity slowing down in India and lower global metal and oil prices (compared to last year)," said Siddhartha Sanyal, an economist with Edelweiss Securities.
The negative rate was a "phenomenon that could end quickly," added D K Joshi, from rating agency CRISIL. "We are seeing oil, commodity and metal prices beginning to move up."
Spiralling deflation -- in which falling prices prompt consumers to delay buying, deepening a downturn -- has become a concern across the globe as demand for goods has dried up.
But the risk is thought to be low in India as the latest figures suggest many food prices, including for pulses, cereals and vegetables, have continued to rise.
The central Reserve Bank of India has slashed rates six times since October last year, though some private and state-run banks have yet to make cuts despite pressure from the government.
India's finance officials expect growth to slacken this year to about seven percent -- the weakest in six years --- after three years of heady expansion of more than nine percent.
Some independent economists forecast a 2009 figure below seven percent and warn the economy will likely lose more steam next year, slowing to 5.5 percent or lower.
The Congress party-led government will present its budget early next month and its focus is expected to be on spurring growth even at the risk of a wider fiscal deficit.
High inflation had badly affected India's millions of poor as prices rose, but now lower growth threatens to hold back the nationwide development promised by the Congress alliance that won general elections last month.
"It's a technicality born out of the fact that fuel prices were very high during the corresponding period last year," Finance Secretary Ashok Chawla said of Thursday's figures, adding that no major policy shift was needed.
India's bout of deflation comes as consumer prices fell in China for the fourth month in a row in May.
Beijing has tried to increase domestic consumption while its export-dependent economy is battered by the global crisis, which has slashed demand in overseas markets such as the United States and the European Union.
D Subbarao, governor of the central bank, had earlier said that "like all emerging economies, India too has been impacted by the crisis, and much more than was expected earlier."
Thursday's figures mark India's first period of deflation for 30 years, according to central bank records.
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