Threat of Deflation

As I posted on 21st December about threat deflation is going to rise in coming months, now reports started coming.

In today's Mint Paper there is article in which many economists expressed their concern over the pace at which inflation is falling and said it may -ve numbers due to BASE EFFECT.

And they have also mentioned the concern over the method of calculation of inflation. And this what I exactly mentioned in my previous posts... Here is the part of that post what I posted in December...

Now second problem regarding the inflation is the pace at which it is falling! As I mentioned in the above paragraph, due to base effect pace may increase and also widen in coming days. In addition to that there is possibility another round of price reduction in the Petrol, Diesel & Gas also this time (which have nearly 14% weightage in WPI series). If this happens WPI numbers may start giving DEFLATION instead of INFLATION numbers. And DEFLATION is very much possible in this kind of economic scenario where day by day economic contraction is happening.

Now coming to domestic demand, how government is going to improve the demand in the market. Looking at October month’s IIP (Index of Industrial Production) numbers of manufacturing sector and overall we are also facing the threat of recession. And exactly this is what Keynes said, PARADOX OF THRIFT. Means if everyone starts saving money during times of recession, then there is decrement in the consumption which leads to fall in the aggregate demand thus leads to a fall in economic growth. If this continues then there will be downsizings & mass layoffs which are already started, eventually it leads to stagnation in the savings of total population or even declined because of lower incomes and a weaker economy.