India enters deflation as economy slows

NEW DELHI, June 18, 2009 (AFP) – India’s annual inflation rate slipped into negative territory, official data showed Thursday, with the country’s slowing economy cutting into demand. Inflation stood at minus 1.61 percent for the week ended June 6, down from 0.13 percent 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