Deflationary phase?

Data released by the Finance Ministry on the contribution of broad commodity groups to the year-on-year inflation during the latest week show that primary articles contributed 227 per cent to inflation, a quadrupling of its share from 56 per cent in the previous week.

In manufactured products, the contribution to inflation was 166 per cent in the week under reference, from 90 per cent in the previous week. The fuels group, on the other hand, showed a negative contribution at (-) 289 per cent against (-) 46 per cent the previous week, registering a six-fold drop.

Even as analysts predict that inflation is likely to turn negative starting April and could remain so until the end of 2009, the Government, on its part, allayed fears that the economy could be entering a deflationary phase. “I do not see any sign of deflation right now. Probably, the decline in inflation is more due to higher base last year than any significant drop in prices,” the Cabinet Secretary, Mr K.M. Chandrasekhar, told presspersons on the sidelines of an event here.

The International Monetary Fund, earlier this week, said that India should rely more on monetary policy to support the economy as high public debt makes fiscal efforts difficult. The RBI had, on March 4, cut its key repo rate to an all-time low of 5 per cent, having pruned it by 400 basis points since October.

Source: Business Line