India enters deflation as economy slows

[Naveed Yaseen]

NEW DELHI: India’s annual inflation rate slipped into negative territory for the first time in 30 years, official data showed on Thursday, with the country’s slowing economy cutting into demand.

Inflation stood at minus 1.61 per cent for the week ended June 6, down from 0.13 per cent the previous week, according to the Wholesale Price Index, India’s most watched cost-of-living measure.

The index in August touched a 13-year high of 12.9 percent but a period of deflation had been expected as rates tumbled, reflecting weak growth in Asia’s third-largest economy.

The price crash was also a result of diving commodities costs, analysts said.

“To a great extent, inflation has fallen due to industrial activity slowing down in India and lower global metal and oil prices (compared to last year),” said Siddhartha Sanyal, an economist with Edelweiss Securities.

The negative rate was a “phenomenon that could end quickly,” added D K Joshi, from rating agency CRISIL. “We are seeing oil, commodity and metal prices beginning to move up.”

Spiralling deflation in which falling prices prompt consumers to delay buying, deepening a downturn has become a concern across the globe as demand for goods has dried up.

But the risk is thought to be low in India as the latest figures suggest many food prices, including for pulses, cereals and vegetables, have continued to rise.

The central Reserve Bank of India has slashed rates six times since October last year, though some private and state-run banks have yet to make cuts despite pressure from the government.

India’s finance officials expect growth to slacken this year to about seven per cent the weakest in six years after three years of heady expansion of more than 9pc.

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