NEW DELHI, March 11 (AFP): It was less than a year ago that Indians watched inflation shoot to dizzying 13-year highs but now they are worried about deflation as growth slackens in Asia's third-largest economy.
Deflation-in which falling prices prompt consumers to delay buying, deepening a downturn-has become a growing concern across the globe as demand for goods sinks.
India's weakening inflation is the symptom "of a deeper malaise" with an "adverse environment" for jobs, salaries and business prompting a fall in prices, HDFC Bank Chief Economist Abheek Barua said.
Inflation has tumbled from 12.91 per cent last August to 3.03 per cent, partly due to a precipitous slide in the global price of oil and other commodities.
Now a slowing domestic economy is kicking in as the global financial crisis hammers exports.
Inflation will reach zero by the end of this fiscal year in March, according to Axis Bank economist Saugata Bhattacharya.
Some economists forecast deflation could then set in and last until at least October.
It would mark India's first bout of deflation since March 1976, according to central bank records.
"Wholesale price levels are showing absolute declines unprecedented since the start of the (inflation data) series in 1988," Goldman Sachs economist Tushar Poddar said.
India uses the Wholesale Price Index to measure inflation because it has a broader basket of goods.
"We think deflation will be a much bigger risk for the economy in the rest of 2009... due to ongoing demand destruction and commodity price collapses," Poddar said in a recent research note.
India's drop in inflation, which has gathered pace as a good harvest lowers food prices, has been welcome news for the Congress-led government.
That caution may be well placed, as warning signs spell danger for the new administration.
Debt-laden US banks remain the epicenter of the eocnomic crisis and it is still not clear the administration knows how to fix them.
Treasury Secretary Timothy Geithner has endured a pounding, after his initial attempt to explain the Obama banking plan foundered, and underwhelmed the markets. It is still not clear whether the administration will eventually be forced into nationalizing parts of the industry, will throw billions more dollars at the banks, or will work out how to deal with toxic assets.
An unappealing choice appears to be looming on whether to shell out more government cash to the iconic "Big Three" auto firms or let them die.
Though administration officials deny fluctating stocks are a measure of Obama's progress, the markets have tumbled during his presidency.
On January 16, the last day of trading during the Bush administration, the Dow Jones Industrial Average closed at 8,281.22.
After 50 days under Obama-and dragged down partly by economic turmoil not of his making-the Dow closed at 6,926.49, despite a 5.8 per cent rally Tuesday.
The scale of Obama's 3.55 trillion dollar budget revealed his sizable plans, but horrified critics.
"The budget he's proposed for this nation, I think is a radical, reckless exercise in fiscal discipline," Republican Senator Lindsey Graham said summing up Obama's first 50 days on CNN Tuesday.
