India enters deflation as economy slows

NEW DELHI (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.

Less than a year ago inflation in India touched dizzying 13-year highs but a period of deflation had been expected as rates tumbled, reflecting weak growth 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 has dried up.

India's inflation crash was a 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 earlier this year.

The country's inflation has declined from 12.91 percent last August also partly because of a dive in the global price of oil and other commodities.

The central bank, the Reserve Bank of India, has slashed rates six times since October last year, but some private and state-run banks have yet to cut their lending rates despite pressure from the government.

India's finance officials expect growth to slacken this year to 7.1 percent--the weakest in six years--after three years of heady annual expansion of more than 9 percent.

Some independent economists forecast a figure below seven percent and warn the economy will likely lose more steam next year, slowing to 5.5 percent or lower.

The Congress party-led government will present its budget early next month and its focus is expected to be on spurring growth even at the risk of a wider fiscal deficit.

High inflation had badly affected India's millions of poor as prices rose, but now poor growth threatens to hold back the nationwide development promised by the Congress alliance that won general election last month.

India's bout of deflation comes as consumer prices fell in China for the fourth month in a row in May.

The Chinese government has tried to increase domestic consumption while its export-dependent economy is battered by the global crisis, which has slashed demand in overseas markets such as the United States and the European Union.

Thursday's figures mark India's first period of deflation for 30 years, according to central bank records. (AFP)

MySinchew 2009.06.18


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