The rate of inflation, as measured by the wholesale price index, has turned negative for the first time in three decades. The widely watched WPI fell to -1.61% in week ended June 6. This makes India possibly the only country with a negative inflation rate, though a number of European countries are nearing zero levels.
But unlike in Europe, where demand has been contracting, India isn’t facing a deflation as industrial output remains positive and the inflation rate measured by the consumer price index (CPI) still stands around 8% and shows no signs of a let-up.
Bankers are divided over whether a negative inflation rate will prompt the RBI to cut its benchmark policy rates. With negative inflation, real interest rates (net of inflation) in the money market are high.
Source: Timesof India