Deflation the way ahead?
Last year we have seen Inflation peaked but now with so much happening are we moving towards DEFLATION or may be an Econominc depression like 'The Great Depression" of 1929?
As India's Inflation rate is currently at 0.44%, which is 32 year low, are we all set to move into negative inflation (Deflation) When there are reports about the Fiscal deficit going to touch 14%, growth at 4.6% etc.
Thoughts welcome...
Thanks to Siddarth Tyagi for raising this question...
Well no points for guessing tht today in India we av both high supply n dwindling demand to contribute to lowering inflation or staring deflation... though i don't see it as a big concern bcos...
1. We already had a very high and over inflated base in d boom time...
2. India is still growing at a healthy rate
3. Gov. is already out with big stimulus packages and the multi million $ election saga is about to start
4. Implementation of 6th pay commission
However, western economies will still take some time to recover and get back to their buying mode... so indian exporters r likely to bear the brunt for bit longer... but thr is an increasing liquidity in the indian market (as visible from the points 2, 3 & 4 above) which should encourage the producers to look towards domestic consumers... thus maintaining supply, as the demand is likely to increase in the domestic mkt... well this is something tht shud ideally happen... thus maintaining the supply near flat and slow, subsequent increase in demand wud av resulted in a gradual shift from deflation (for few mnths) to inflation (may b frm d last quarter of 2009)...
But i suspect tht it wudn't happen this way rather producers will b over cautious. We will soon see producers cutting down on supplies to counter deflationary trends... though demand is likely to soar with increasing liquidity in d domestic mkt... This situation will mean a quicker and steeper change in commodity prices and my 5 pence on India crossing the trough (lowest point of inflation curve) and getting into inflation right frm d month of July-Aug 09.
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