Deflation mystery- Still unsolved

Deflation not a threat to economy: Bankers
With inflation fast approaching zero per cent, bankers have sought to allay fears that the country may be in the deflation mode on grounds that the consumer price index was still high and deflation was a statistical phenomenon due to base effect.
"Deflation is unlikely to have any major impact on the economy. Negative inflation, if it happens, will occur mainly on account of declining oil prices, easing monetary policy. It is unlikely to stay long," IDBI Bank Chief Financial Officer R K Bansal told media here.
Source: EconomicTimes

Totally agree with the bankers on this. Additionally, I think-
1. Inflation by definition is change in prices over a period of time. Fluctuations in demand and supply keep happening in all the markets and all the time. Deviations in prices from the equilibrium due to such fluctuations should not be taken as trends. In short- Let us wait for another couple of months to see the price trend (both CPI and as well as WPI)

2. The key point here is that WPI is near zero percent and the CPI is still around 9%Is this good or is this bad? Well...difficult to say now. Anyways, what is more important right now is to see and understand the forces that have led to a dip in WPI (still will not call it a trend)? Given that we do not seem to be in a liquidity crisis right now, falling WPI could mean that either the demand is falling or the supply is increasing in the goods market. Given the slight fall in the optimism in the economy, I think it is the former.
There can also be additional forces at work here. But, it will be interesting to see how things change from here.

The good thing is that the common man may actually start believing that the inflation in at zero percent and may start spending. However, we don't want to move into a situation where the common man starts thinking that the inflation is going to continue to fall- this will make him delay spending now.

Economy needs more stimulus in 2009-10: Ahluwalia

Mr Ahluwalia had earlier said that the economy’s growth rate would be slightly less than 7% in the current fiscal and the next fiscal. "We are likely to get a growth rate less than 7%... between 6.5% and 6.7% in 2008-09," Mr Ahluwalia had said.

Source: Economictimes

What if RBI becomes a regular corporate bank?

Here is a hypothetical situation (Although I don't know why it cannot become a reality)- What if RBI turns into a regular Bank? I am just thinking of some of the implications of such an event.

Today the banks are reluctant to lend. In India, the inflation is zero percent and the lending rate is still around 9%. The RBI has been cutting the bank rate consistently, but to no benefit. Banks are not ready to bring down their lending rate. Now the question is that is there any quicker way of giving money to people?

What if RBI also starts playing the role of any normal corporate bank. Let it lend money to people/businesses/government at a lower rate than that is present in the economy.

Here is what will happen-

1. RBI will be able to not only increase money supply but actually increase
demand by lending at a lower rate
2. The private banks will face immense competition from the central bank. The result
will be that the pvt banks will also have to start lending at a lower rate

India - Managing the Impact of the Global Financial Crisis

This is a speech delivered at the Confederation of Indian Industry's National Conference and Annual Session 2009 in New Delhi on March 26, 2009. - By Duvvuri Subbarao, RBI Governor

The article talks about the various fiscal and monetary policies that have been announced to combat this crisis. Subbarao also talks about the outlook for India.

I don't agree with one point that he mentioned in his speech-

Finally, over the years, India has built an extensive network of social safety-net programmes, including the flagship rural employment guarantee programme. These uniquely Indian versions of automatic stabilizers should protect the poor from the extreme impact of the global crisis.

I don't think the flagship rural employment guarantee programme of the UPA is an automatic stabilizer by any stretch of imagination. An article in IndianExpress shows how the plan is behind in delivering its intended benefits- In most cases, the number of job-days are as less as 25, a government-sponsored panel said.
Anyways, I don't think of this as a major stabilizer and definitely not as an automatic one

India to grow at 6% this year: UN

Source:The Financial Express

Assumption of perfect knowledge

Yes, you will find implicitly or explicitly an assumption of perfect knowledge in any economic theory or model. Obviously, the market change is always dependent on the economic agents...and for that to happen these agents have to be sufficiently informed about the state of the economy.
Now, people depend on economic indicators for that knowledge. I am just wondering whether having more economic indicators (i.e., more informed/misinformed people) can have any impact on the speed with which market forces work.
For example- Developed countries like USA and Japan have several indicators that can help investors/consumers determine the state of the economy and make an informed decision. Here are some indicators for Japan that I came across –
1. Consumer Confidence Index: 26.4 (+0.2)
2. Overall Livelihood: 29.2 (+0.7)
3. Income Growth: 31.4 (-0.1)
4. Employment: 14.2 (-1.2)
5. Willingness to buy durable goods: 30.6 (+1.2)
Source
In a country like India it will be near impossible to get these indicators. This is bound to impact the speed with which market forces work here (India). You can find interest rate numbers, GDP growth, FDI/FII, etc, but you will not be able to get those second level of economic indicators, (as illustrated above) which may have a role to play in changing expectations and hence the speed of the change in the market

RISK FREE SUIT

Jos A Bank store in Illinois has launched a 'Risk Free Suit'. The store promises to refund the price of a suit if the purchaser loses his job. (AFP)
Source: Economic Times