Rising food prices, not negative inflation, is what alarms corporate India.
“There is no fear of deflation and this is just a temporary phenomenon. The negative inflation number that we see today is the result of a sharp drop in prices of fuel, power and lubricants,” said Amit Mitra, secretary general of Federation of Indian Chamber of Commerce and Industry (FICCI).
“We are rather concerned that the prices of food articles are still ruling high. With the consumer price index hovering around the 8 percent mark, it is important that the government devises a concerted policy that would enhance supply of critical food items,” Mitra added.
For the first time since the new wholesale price index (WPI) series started in 1995, India’s annual rate of inflation turned negative, falling to minus 1.61 percent for the week ended June 6, official data showed Thursday.
The inflation rate, which was 0.13 percent in the previous week, had last turned negative in 1977.
However, Mitra said the fall in the headline inflation numbers did not reflect the overall price situation.
“We are seeing conflicting trends in the price movements of different segments. While fuel prices are going down, price of primary products continue to move up. Amongst the manufactured goods, a decline in the prices of items such as basic metal alloys and machinery and machine tools is reflective of a slowdown in the investment activity.”
Maintaining that these numbers “are clear pointers towards future corrective action”, Mitra said: “Careful management of the food economy and strengthening of the investment activity should be the priorities for the government.”
Associated Chambers of Commerce and Industry of India (Assocham) called for government intervention, saying the negative zone inflation reflected slowdown in production activities.
“Negative inflation rate indicates that there is room for further rationalization of the interest rate structure in order to boost demand,” said Assocham president Sajjan Jindal.
According to him, growth need to accelerate and prices kept stable to encourage demand.
The PHD Chamber of Commerce and Industry predicted the negative inflation rate to continue till August. “What is more, the prices of primary articles have not come down and continue to be worrisome,” said chamber secretary general Krishna Kalra.