Inflation rate in India has gone into negative territory for the first time in over three decades. The rate of change in prices was minus 1.61 per cent for the week ended June 6. However, this is partly a statistical illusion because in the same week ending June 6 last year the inflation rate had suddenly jumped to over 11 per cent on the back of rising global commodity prices. So on a high base of June 2008, a negative growth in prices this year is not surprising.
So too much need not be read into the inflation rate going negative. This is definitely not a sign that the economy is still in a risk of deflation. The consensus view is the GDP growth for the economy in 2009-10 will certainly be higher than the 6.7% growth registered in 2008-09.
The inflation rate appears to be actually rising on a sequential basis i.e if you compare prices of food, fuel and manufacturing items today with what existed a month ago, the prices are actually rising. The point to point comparison can create some statistical illusion. Of course, there are myriad other problems with the way the inflation rate is calculated.
Consumer price indices for industrial workers and agriculture labourers have been much higher than the wholesale price index these past few months. It is most unlikely that even the wholesale price index will stay negative going forward. The rate of inflation will return to the normal 3 to 5% in due course.