Good and bad about the strengthening disinflation.

Inflation in the economy is coming down at a quicker rate. The current price fall is because of declining food and fuel prices. A lower food inflation compared to the entire CPI was recorded during November 2014 data. Inflation came down to 4.38 percent while food inflation was 3.6 percent for that month.

Notable trend is that during the last seven months starting from May, inflation increased only in July. That also was very slight. This is an indication that the economy is on noticeable level of disinflation mode. Disinflation is decline in the inflation rate.  

Conventionally, a decline in food and fuel are the sectors where price rise appears first. So is the case with price decline.

This time around the decline is not convincing for the RBI to initiate interest rate cut. Disinflation should reach the whole economy by bringing down the core inflation.  

Core inflation is inflation measured from items excluding food and fuel. Since food and fuel constitute to 60 percent of the CPI basket. 

Globally, most economies are facing declining price trend. In advanced countries, there is the painful deflation.  On the other hand in many developing countries, inflation is coming down propelled by falling commodity prices.

Chinese inflation is similar to the Indian scenario, where the central bank fears lowest growth rate in five years.

Declining prices are not pleasant indicators if one is watching the present world economy’s progress. The global economy is moving to a deflationary period causing decline in investment and growth.

Hence, Chinese central bank has already made a rate cut on November 22 to stimulate the economy. In India also, decline in inflation is nice, but economic activities are to be reenergized to bring back growth. 

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