24 October, 2020

The Dagger Under The Cloak

Low inflation may be a boon for the consumer, but a cascading effect of the price wars could throttle growth

The Dagger Under The Cloak
outlookindia.com
-0001-11-30T00:00:00+05:53

Mid-summer, '98. Prices of food items are going through the roof. Potatoes up four-fold, tomatoes five-fold, lemons six-fold, coriander ten-fold, culminating in the onion crisis towards the year-end. Economists warn of impending stagflationóa situation where rising prices could send an already-dismal economy down the tube. The middle class does what it canóboycott the onion and vote the bjp in Delhi and Rajasthan out of power.

Mid-summer, '99. The inflation barometeróthe wholesale price index (wpi)ótakes another unprecedented swing. The official rate touches a 17-year low of 1.83 per cent and analysts see a decline to 1 per cent.

Many see this as scary. 'We need stable prices. This isn't a nirvana-like state of low prices, low unemployment with steady growth. Rather, prices are falling in a situation of slack demand, incomes and investment. This is a symptom of the recession. It sucks the economy in a spiral,' says Wilima Wadhwa, executive director, Society for Economic Research and Financial Analysis.

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