DR Ambedkar IAS Academy

What is Deflation&Reasons behind Negative WPI Inflation in India

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What is Deflation

Deflation is a decrease in general price levels of throughout an economy. If there is a higher supply of goods and services but there is not enough money supply to combat this, deflation can occur. Deflation is mainly caused by shifts in supply and demand.

Disinflation, on the other hand, shows the rate of change of inflation over time. The inflation rate is declining over time, but it remains positive. For example, if the inflation rate in the India was 5% in January but decreases to 4% in March, it is said to be experiencing disinflation in the first quarter of the year.

Reasons behind Negative WPI Inflation in India

While prices of pulses and onion have increased greatly in last few years, However WPI is negative from more than 1 year. There are various reasons behind this phenomenon.

• In WPI primary articles which include food articles is given very less weightage.77% weightage is given to Fuel, Power, Light & Lubricants and Manufactured Products. Both Fuel prices and manufactured prices have been at all time low due to number of global and domestic reasons, which has put WPI into negative territory

• While global factors include slump in the price of oil and commodities. The domestic factor include lack of demand which has pushed the prices down

• The food inflation has also decreased significantly in last 2 years due to number of reasons.

(1) Firstly MSP had been one of the major reasons for inflation however since the NDA government came to power it has increased only by 6% which has a moderating effect on on inflation.

(2) Secondly Over production in certain crops like sugercane, rubber has slumped there prices.

(3) Thirdly during drought period The timely release of Buffer stock, Strict action against hoarders and Timely imports have overcome shortage of supply.

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