Capitalmind
Capitalmind
Actionable insights on equities, fixed-income, macros and personal finance Start 14-Days Free Trial
Actionable investing insights Get Free Trial
Economy

Inflation dips below 0. at -1.61% now.

India’s Wholesale Price Index has fallen compared to last year, giving us the first negative figure in 30 years, with a -1.61% printed. Of course this may be revised, etc.

The longer term trend seems to be intact, so no deflation per se. Food is an inordinately higher weighted component of WPI, and deflating factors like housing aren’t quite well represented (though forming a significant percentage of expenses).

Still, a negative number is helpful in reducing inflationary fears. Now if the slope of the curve were to dip, that would be dangerous.

  • kvv says:

    >I've been wondering about the effects of deflation on the Indian economy? Is it really dangerous or a boon?

    Sure for the US, deflation is synonymous with a deleveraging spiral in an economy where personal and corporate balance sheets are loaded with debt.

    Secondly, deflation doesn't seem to be universal in that prices for essentials/consumer non-durables have persisted because there is relative less reduction in demand.

    In the Indian economy, deflation has -ve impacts on the real estate sector and leveraged corporates – that should be a small portion of the economy? Given the better prospects of growth in the region, the sound companies in that set should still be able to attract investment. By and large most of the population is -vely affected by inflation in consumer non-durables and commodities. Given the above, shouldn't we be agnostic towards deflation? Doesn't it give the govt opportunity to invest massively in infrastructure with low commodity prices? Doesn't a deflationary environment support investment in only the fundamental areas where it is most needed and reduce malinvestment?

    Well, I'm not an economist so arguments are most likely very flawed but I hope you get the general point. Thoughts?

  • Anonymous says:

    >Hi,
    do you have any view on the Mahindra Holidays and Resorts India (MHRIL) IPO coming this month?

  • abhikush says:

    >@kvv – The worst of deflation in India is already over. I wrote a blog (http://abhikush.blogspot.com/2009/06/seasonality-in-indian-inflation-wpi.html) on this where I outlined how the seasonally adjusted inflation rate bottomed in Dec '08 and has been rising since then. I think the bigger concern is if the rate of change does not slow then we would be dealing with another round of higher inflation.