Analysts fear deflation will hit India in 2-3 months
In August last year inflation hit 12.63 per cent, the highest in 16 years. On Thursday, the figure stands at just over 3 per cent. Should consumers be rejoicing? Not really, say analysts. Deflation – a sustained fall in prices as inflation falls below zero per cent – could follow.
“What is important to recognise is why is deflation taking place, that might be little scary for common man because deflation suggest that there is so little demand in the economy that prices are actually falling,” says Chief Economist HDFC Bank Abheek Barua.
Prices of goods and services fall when there is lesser money in the system. Lack of money means consumers spend less (demand falls) this in turn affects profits earn by companies (less money) and industrial production slows down. Companies have to cut costs perhaps by job cuts.
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This article was originally posted on IBNLive.com