Inflation slips into negative zone, falls to -1.61% !!!

Inflation turned negative 1.61 for the first time in thirty years but the prices of food items like fruit and vegetables, cereals and oil were still higher than last year.

With the wholesale price index shrinking to 232.7 points for the week ended June 6 from 236.5 in the same week a year ago, India possibly is the only major economy moving into a deflationary zone though the European region is near zero level due to recessionary pressures.

“Negative inflation was expected by the market and policy makers. It reflects lower commodity prices on a year-on-year basis,” said Atsi Sheth, Chief Economist, Reliance Equities.

The stock markets immediately welcomed the development and jumped by about 200 points from the morning lows as market analysts expect this to help further ease the monetary policy restrictions and pave the way for cut in banks' lending rates.

“Negative inflation does not reflect deflationary environment. Though WPI is higher from week before, deflation is not a concern right now,” said Indranil Pan, Chief Economist, Kotak Mahindra Bank.

Releasing the wholesale price data, the government said in a statement that "the annual rate of inflation, calculated on a point to point to basis stood at minus 1.61 per cent for the week ended June 6 as compared to 0.13 per cent for the previous week and 11.66 per cent during the corresponding week of previous year".

However, food articles were costlier by 8.7 per cent from the comparable week last year as pulses moved up 17 per cent, cereals 13.5 per cent, and fruit and vegetables 10 per cent. The dip was on account of a fall in fuel prices as international crude oil is now ruling around $70 a barrel against over $140 a barrel during the year-ago period.