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WPI reflects an inflation of -0.52% from -0.26% in September; food index up 1.07% in October compared to last year, with food prices up 1% sequentially from September levels as well.
Wholesale price inflation stood at 8.4% in October 2022, creating a high base effect for last month’s index. On a month-on-month basis, the WPI was up 0.4% in October.
What is Deflation?
Deflation is a decrease in the general price level of goods and services.
It is the opposite of inflation, which is an increase in the price level of goods and services.
Deflation occurs when the inflation rate falls below 0%.
There are two main types of deflation:
Demand-pull deflation: This occurs when there is a decrease in aggregate demand, which is the total demand for goods and services in an economy. This can be caused by a number of factors, such as a recession, a decrease in consumer spending, or a decline in investment.
Cost-push deflation: This occurs when there is a decrease in the cost of producing goods and services. This can be caused by technological innovations, increased productivity, or a decrease in the price of raw materials.
Positive effects of deflation
Increased purchasing power: Deflation increases the purchasing power of consumers, as they can buy more goods and services with the same amount of money. This can lead to increased consumer spending, which can boost economic growth.
Reduced debt burden: Deflation reduces the real value of debt, which can make it easier for borrowers to repay their debts. This can improve the financial health of businesses and individuals, and it can also lead to increased investment.
Negative effects of deflation
Debt-deflation spiral: Deflation can lead to a debt-deflation spiral, which is a vicious cycle of deflation and debt. This occurs when deflation makes it more difficult for borrowers to repay their debts, which leads to defaults and bankruptcies. This can further reduce demand and prices, and it can lead to a depression.
Deflationary expectations: Deflationary expectations can also be harmful to an economy. This occurs when consumers and businesses expect prices to continue to fall in the future. This can lead to a decrease in spending and investment.
WPI and its recent trends
India’s wholesale prices remained in deflationary mode for the seventh month in a row in October, with the Wholesale Price Index (WPI) reflecting an inflation of -0.52% from -0.26% in September.
WP inflation stood at 8.4% in October 2022, creating a high base effect for last month’s index. On a month-on-month basis, the WPI was up 0.4% in October.
The wholesale food index was up 1.07% in October compared to last year, with food prices up 1% sequentially from September levels as well.
But the trends within the food basket were divergent and runaway prices of some items like onions and pulses pose risks to the retail inflation trajectory.
While vegetable prices dropped 21%, inflation in paddy and cereals accelerated to 7.5% and 9.4% respectively, and pulses and onion inflation jumped to 19.4% and 62.6%, respectively. Fruits inflation picked up to 6.3% while milk inflation is 7.9%.
Manufactured products’ prices were unchanged from September levels. Fuel and power prices rose 0.65% from September levels, but were 2.5% below last year’s levels.
Crude petroleum and natural gas inflation stood at -2.2% in October.
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