India Economy: Inflation Dips to 30-Year Low

By: CaraTan   Date: 26 March 2009

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New Delhi, 26 Mar. In the second week of March, Indian inflation dropped to its lowest in 30 years – 0.27%. While this sounds good on the surface, it has little room before it goes into negative territory, creating harmful deflation.

This rate was achieved despite higher prices of certain commodities such as vegetables and cereals. Fruit, rice, barley, cottonseed, maize and other primary foods increased in price by 0.1%.

The chief economic adviser to the finance ministry, Arvind Virmani commented on the levels of the wholesale price index (WPI). “I expect consumer price index also to come down with a lag but I don't think it will go down to a level we see in the WPI," he said.

Some economists fear deflation will start this April. Deflation happens when the price of goods and services drops, to the degree that inflation is in negative figures.

Deflation occurs when people stop buying and spending money. As fewer consumers – or the government – spends, sellers drop their prices to get business. This can happen when there is not sufficient money


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