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Rediff.com  » Business » Prices to fall in 2009

Prices to fall in 2009

By Kumar Dipankar and Chandra Shekhar
Last updated on: December 31, 2008 13:59 IST
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The pinnacle of a market economy is when the consumer feels like king. Never before have Indians had such a vast choice and for the icing on the cake, prices from kitchen goods to cars started falling in 2008.

This sense of euphoria, however, became a reality only toward the end of 2008, the early part of which the common man spent trying hard to budget for basic needs in the face of burgeoning inflation that hit a 13-year high in August.

For most part of the year, vegetable and fruit prices were high, bank loans were prohibitively priced, dreams of buying a house remained just that - dreams and exotic outings elusive.

The New Year, however, brings them promise of changing all this, with bankers and economists predicting rate of price rise to fall by 2 per cent by fiscal 2008-09, amid the possibility of inflation diving into negative zone thereafter.

While the common man was indeed hit hard by inflation, which was about 3-4 per cent at the beginning of 2008 and rose to a high of 12.91 per cent in August, the ruling UPA too was restive about high prices as it went to elections in states while preparing for Lok Sabha polls.

The government, which was riding high on the fourth successive nine per cent plus growth in as many years in power, was virtually at the end of its wits to control what it called "imported inflation" caused by skyrocketing prices of crude and commodity, the two things that impact the aam aadmi the most.

Prices became a major political issue and the global financial crises proved to be a blessing in disguise in curbing the 'menace' of inflation as international crude and agriculture and other commodities dived substantially. 

In fact, the dip in prices was more evident in automotive than any other sector with Hyundai selling select models at 10-year-old prices. Overall, vehicle prices are lower by 8-20 per cent.

Vegetable prices have already dipped significantly and edible oil by nearly 25 per cent, while steel is cheaper by as much as 40 per cent and housing prices up to 15 per cent.

Petrol and diesel rates, which were reduced on December 6 by Rs 5 and Rs 2 a litre respectively, are likely to come down further.

Industrial fuel declined by a whopping 70-80  per cent as the international crude oil prices cooled down from an unprecedented level of 147 dollar to a barrel in July to about $38 to a barrel.

In addition to petroleum goods, the commodity prices soared in the international market, partly on account of demand of steel and other construction material by China for building infrastructure for Beijing Olympic Games also corrected significantly.

Earlier, demand for steel fuelled by the construction activity in the run up to the Olympics had its repercussions in India, as the domestic industry raised the prices of steel and cement.

The government tried to combat price rise by fiscal measures, while the Reserve Bank tightened the monetary policy by raising key ratios and policy rates.

As the government and the RBI were struggling to combat the menace of price rise, Lehman Brothers filed for bankruptcy protection in the US on September 15 triggering a global financial meltdown and recession, not witnessed since the Great Depression in 1929.

Global meltdown: Complete coverage
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Kumar Dipankar and Chandra Shekhar
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