Next to cricket, no topic so stirs this country as inflation. Every Friday morning, the office of the economic advisor to the commerce ministry releases the figure of the wholesale price index a fortnight earlier. The official inflation estimate peaked at 12.6 per cent 10 weeks ago. It had risen to that level from under 5 per cent at the beginning of 2004. The rise was so inexorable that it looked as if inflation would go on rising. Then suddenly, the figures changed direction and started falling; this week, the estimate came down to under 9 per cent. Some consumers of inflation must be cheered up, and are no doubt wondering how much further it would fall. Their wives, on the other hand, must be increasingly doubtful of the official index, since inflation in the prices of food and household needs shows no signs of moderation.

It is notable that the fall in inflation is real, and not the result of the base effect. Prices were quite stable in the last quarter of 2007; so it is not high inflation last year that is reflected in figures this year. And going by the actual index instead of focusing on inflation, which is its derivative, the wholesale price index peaked at 241.1 in the first fortnight of September, and has been falling since. By the beginning of this month, it was down to 235.5. So over the past two months, inflation has been negative. Prices have come down almost 2.5 per cent in 8 weeks; if they continued to fall at this rate, they would fall 17.5 per cent in a year. That is too pleasant a prospect to materialize.

It is also important to realize which prices have been falling. They are chiefly of three product groups: mineral oil, steel and cotton textiles. Their mention immediately brings to mind their international connection. India imports most of its oil. Steel and textiles are amongst its principal export products. Prices of steel are in decline because the all-consuming construction boom in China has come to an end; and Western economies are importing less of India’s cotton textiles as they slide into recession. So the fall in inflation is largely imported, and has nothing to do with economic developments or policies in this country. The impact of international forces is all the more striking because the Reserve Bank of India has depreciated the rupee by almost 20 per cent, which should have raised import and export prices in rupees. Since there is no domestic contribution to the fall in prices, it is impossible to say how far it will go. All that can be said is that as long as weak international demand continues, it will exert a downward pressure on prices. The government was ineffectual against inflation at the best of times; now it can cease to concern itself with inflation.