Single digit inflation…good news or bad news??
In the amidst of all the good news, there is a silver lightning in the form of the news that the inflation has finally reached single digits. For the last week, the inflation came down to around 8.5% from around 10% in the previous week.
But is it really a good news? I think this is more of a warning of the forthcoming.
With a drastic decline in the IIP growth rates, and the average money available to people it was but pertinent that the inflation would come down.
But I think this is eventually leading to a deflationary trend. If things happen at the same pace as they have been happening, there is every chance that deflationary periods will be looming around in no time.
Consider this in the upcoming months:
a) Production decreases
b) Exports go down
c) Affordability of people go down
d) Fuel prices go down
e) Money available to people goes down
f) Negative perceptions towards the economy increases
g) Will not speak much about the exchange rate. It may remain the same or depreciate further, let's assume it hovers around the 50 mark for some time.
With all these events happening, the rates are going to come down quite drastically and eventually there will be a negative inflation observed, which is called as deflation.
Isn't it good to me if there is deflation? Obviously no, because:
1) The future value of the money becomes more than the present value and hence no investment will happen.
2) Banks will be flooded with deposits and the incentive to run business decreases
3) Salaries, which are ideally pegged to inflations, will tend to decrease and hence the per capita income of the people decrease and hence the eventual decline in consumption.
I am not sounding pessimistic, but I certainly would not want a deflation at this point of time because there will hardly be anything left with the government to bring back the economy from recession.
I hope I've exaggerated and that Iam wrong.
But is it really a good news? I think this is more of a warning of the forthcoming.
With a drastic decline in the IIP growth rates, and the average money available to people it was but pertinent that the inflation would come down.
But I think this is eventually leading to a deflationary trend. If things happen at the same pace as they have been happening, there is every chance that deflationary periods will be looming around in no time.
Consider this in the upcoming months:
a) Production decreases
b) Exports go down
c) Affordability of people go down
d) Fuel prices go down
e) Money available to people goes down
f) Negative perceptions towards the economy increases
g) Will not speak much about the exchange rate. It may remain the same or depreciate further, let's assume it hovers around the 50 mark for some time.
With all these events happening, the rates are going to come down quite drastically and eventually there will be a negative inflation observed, which is called as deflation.
Isn't it good to me if there is deflation? Obviously no, because:
1) The future value of the money becomes more than the present value and hence no investment will happen.
2) Banks will be flooded with deposits and the incentive to run business decreases
3) Salaries, which are ideally pegged to inflations, will tend to decrease and hence the per capita income of the people decrease and hence the eventual decline in consumption.
I am not sounding pessimistic, but I certainly would not want a deflation at this point of time because there will hardly be anything left with the government to bring back the economy from recession.
I hope I've exaggerated and that Iam wrong.
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