Ready for deflation...

The steep and completely unexpected decline in inflation rate to 8.98% should provide respite to policymakers. The sharp fall in inflation, triggered largely by the slump of commodities (metals and petroleum products) over the past month, is unlikely to reverse any time soon, given the recessionary condition. The slowing of China in particular will keep commodity prices low.  We may now be looking at inflation coming down to  5-5.5% by March 2009. That gives the government and RBI the room to use both more fiscal and monetary measures to prevent a slump in overall growth.   Now the money supply has declined to less than 20% from a level of nearly 23% a year ago. And the current situation demands reversal of measures that were appropriate when FIIs were pumping money into the markets and the rupee was appreciating.  While the need of the hour is to takes measures to rejuvenate growth, policymakers should not lose sight of some inflationary pressures that remain.Prices of food grains, vegetables and milk, which are still quite high, hurt the poor, particularly daily wage earners. Pure administrative bottlenecks are also responsible for food inflation,the governement must keep its control over the falling inflation considering the inconvenience suffered majorly by the poor.