Inflation at record low, yet no relief to common man
Continuing its southward movement, the annual rate of inflation reached to two-decade low from 13-year high on October 2008, providing further scope to Reserve Bank of India and the government to take some more steps to arrest the sluggishness and boost market demands.
According to the latest report of Wholesale Price Index (WPI), the annual rate of inflation calculated on point-to-point basis, it slipped to 0.44% for the week ended on March 07 from 2.43% for the week ended on Feb 28. Last year for the same corresponding week, it was 7.78%.
However, the prices of food items are still high and there is no relief to common man despite the fall of inflation close to zero level. As per market experts, the cooling down of inflation doesn’t mean that the prices of food products and other commodities will come down, rather the growth in inflation slides against last year’s rate of inflation.
‘The decline in inflation is more because of the higher base last year than any significant drop in prices,’ experts added.
The food items are still rising by 7.4% compared to last year, according to the consumer price index (CPI) – another price indicator in which food prices have roughly 70 per cent weightage – while the WPI puts the weightage at mere 7%.
RBI and the government have now the options to take some more productive measures in order to boost the economy, moreover, to prevent the nation from every possibility of deflation in which the prices of commodities decline due to lack of demands or money supply.
According to Pronab Sen, the chief statistician and Secretary, Ministry of Statistics and Programme, India is going to be the victim of disinflation – the negative inflation rate due to slower demands, not due to contracting in demand – not deflation that India is looking at.
To boost the demand, RBI has already cut the Cash Reserve Ratio – the slice of cash that banks park with the Central Bank – four times since last October.
This move was to discourage banks to deposit liquidity with the apex bank. On the other hand, for encouraging lending, the apex bank had also slashed Basic Prime Lending Rate (BPLR), Statuary Lending Rate, repo rate and reverse repo rate several times.
RBI in its fourth quarter money policy may announce another round of cut to push banks for passing the benefits of rate cuts to the customers, so that the demands can be stimulated.
However, previous rate cuts are yet to leave a considerable effect as private sector banks those share a thick portion in lending still adopting over-cautious approach and not lending more as against the previous fiscal year.
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