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ShareBarring a miracle, this time next week, we may be celebrating the advent of a rare spell of deflation in our economy.
The inflation rate has fallen by almost two percentage points over a span of just seven days to 0.44% for the week ended March 7, 2009. If figures can lie, this development furnishes one more instance.
Before we rejoice, consider howthis low inflation figure may be due to a fortuitous element -- the strident increase in prices across the board at this point a year ago and the equally dramatic decline during the latest week barring manufactures where the wholesale index had ruled unchanged.
The effect of this statistical phenomenon was to bloat the base period indices -- that is, for the week ended March 8, 2008 -- and depress the index for the latest week so that the deceleration in the inflation rate has been faster than it would be otherwise.
The perceptible weakening of demand of late as a sequel to the economic slowdown has contributed to this unusual occurrence; besides, the sharp fall in the index for the fuel group from 341.3 to 321.0 between March 2008 and 2009 or by nearly 6% has brought about a situation when deflation stares us in the face.
Consider the behaviour of the wholesale price index around this time last year. Between March 1 and 8, 2008, the group index for manufactures has flared up by 2.61% from 191.6 to 196.6; primary articles and fuel group were up by 0.34% and 0.09%, respectively.
The cumulative impact of these upward changes in the wholesale price index was to boost the week-on-week inflation rate to 1.53%. This year, the movements in the WPI are a study in contrast -- primary articles down by a significant 1.05%, and fuel group by 0.77%, while the index for manufactured goods was steady at 199.2.
In the event, the general index drifted lower by 0.44% during the week ended March 7 as compared with the preceding week. The upshot of this contrary trend in the WPI during the first two weeks of March 2008 and 2009 has led to a precipitous plunge in the inflation rate.
Statistically, the base got inflated while the latest data contracted leading to the point-to-point inflation rate being as low as 0.44% now as against 2.43% during the earlier week and 7.78% a year ago.
There is no denying the fact the price fever is ebbing; from a 15-year high of 12.63% during the week ended August 9, 2008, the inflation rate has eased to less than 5% by the last week of January 2009 to hover round the 3% mark, a month later, climaxing in the two-decade low of 0.44% now.
Industry is in the midst of a demand recession, resulting in a subdued trend in the prices of manufactured products. To this, the big fall in the index for the fuel group has provided a downward push to the inflation rate. Given the heavy weight the manufactured products command in the wholesale index, it is no surprise that that WPI-based inflation figures make a happy reading. At the consumer level, the story is entirely different with double-digit inflation an ugly reality.
