Letters: Deflation demon

What a year it has been - till some months ago, the RBI was worried about inflationary demons and so refused to cut interest rates even though there was enough evidence to show that the inflation fears were exaggerated. You cannot have a world going into a recession and inflation at an all-time high - not surprisingly, oil prices led the way and other commodity prices started easing as well.

The current fear of deflation is just a statistical illusion and has to do with the very high base level of inflation at this time last year. Newspapers reporting deflation news would do well to point this out since there is something called the expectations-trap - readers will get convinced prices are going to keep falling, they’ll keep postponing expenditure, and this will, eventually, result in the classic deflation problem of low prices and zero growth. It’s no one’s case that people should be lied to, and that a false sense of confidence should be promoted, but surely an economy growing at even 5 per cent can’t be said to anywhere near approaching a deflationary phase?

Satwant Singh, New Delhi