New Delhi: India may go into deflation by the beginning of April due to weak consumption demand and a higher base effect, research firm Dun and Bradstreet (D&B) said on Sunday.
“There will be negative inflation for a few weeks in the first quarter of next fiscal, driven largely by higher base effect but we do not expect a pronounced deflationary trend in the economy,” D&B chief operating officer Kaushal Sampat said.
Deflation is a general decline in prices that is often caused by a reduction in the supply of money or credit.
Free fall: A car showroom in New Delhi. Inflation fell to 2.43% for the week ended 28 February, mainly on account of a fall in prices of manufactured goods and some food items. Madhu Kapparath / Mint
The deflationary phase, wherein there is a decrease in general price levels and demand conditions drop significantly, are likely to last only for a few weeks as the recent fiscal as well as monetary measures of the government are likely to boost demand.
“Consumption demand is expected to receive a boost once the lagged effects of the aggressive policy responses by the government and the RBI (Reserve Bank of India) start unfolding,” Sampat added.
Inflation fell to at least a six-year low of 2.43% for the week ended 28 February mainly on account of a fall in prices of manufactured products and some food items. The Wholesale Price Index stood at 6.21% during the corresponding week a year ago.
According to experts, inflation below 3% is a growing concern as it has gone down to less than a quarter from its 13-year high of 12.91% in August.
According to D&B, wholesale-price based inflation is likely to average at around 9% for fiscal 2009, from where it would further move downwards and may average at around 3% during fiscal 2010. The decline in inflation level would be largely because of factors such as weak consumption demand, significant deceleration in international commodity prices, especially crude oil, and decrease in input costs which will induce reduction of final product prices, and the high base effect comes into play, he added.
D&B said, “The decline in inflation will provide more flexibility to RBI to further ease its monetary stance, thereby signalling towards lower interest rate regime. D&B expects the PLR (prime lending rate) to stand at 10.5-11% by end of financial year 2010.”