And now, falling inflation a cause of concern

After the initial euphoria, there is a growing concern as inflation goes down to less than a quarter from its 13-year high of 12.91 last August and seems headed towards zero and sub-zero levels beyond this month.

"Falling inflation denotes slackness in the economy. This is definitely something to be concerned about," Kotak Mahindra Bank's chief economist Indranil Pan said. He sees inflation falling to zero and staying in the negative for some time.

"...The sharp swing down is to an extent also due to the base effect. Last year, the domestic price of oil was high and now it is reduced. True, the commodity cycle has broken down and anyway inflation is likely to have been lower," he said.

Though some economists view the severe drop in inflation primarily due to the high base, Pan is not alone in not attributing the fall in inflation to the high base only.

Fitch Ratings analyst James McCormack says, "A period of mild deflation is possible, as there is little upward pressure on prices with declining demand and commodity prices." He sees annual inflation to remain positive at 3.8 per cent in FY10.

While the inflation rate, based on wholesale price index (WPI), eased to 3.03 per cent in the week ending February 21, the consumer price index (CPI), which is still quite high, has kept the fear of a major crisis at bay.