It is interesting to note that two major economies in Asia are moving in opposite direction as far as inflation is concerned.
India was having inflation rates at around 9% in 2011 that resulted in RBI hiking the rates - this policy caused lot of miseries including sharp fall in the currency value as growth faltered. See the link: http://www.financialstrategyonline.com/2011/12/rbis-smart-moves-taking-india-down.html .
On the other hand, Japan is suffering from deflation . Their economic policies have kept the interest rates to the lowest in the world in their attempt to bring in some inflation- yet deflation continues over the past two decades. This serves as a challenge for Japanese policymakers.
Japan has been stuck with stagnant or falling prices for around two decades. The latest Japanese PM Shinzo Abe had made a goal of 2% inflation target after years of deflation and began quantitative easing in a big way since late 2012. However, the above chart illustrates that the prices points to a continuing decline.
Although Indian inflation numbers say WPI is reducing, this is stated to be "'a managed number" by changing the mix within it. Ask Indian consumer who will say that he is experiencing price increase across the board - this is not a surprise. Indian policy makers find it tough to contain inflation.
Abenomics' massive monetary stimulus was supposed to bring in inflation to a deflation driven Japanese economy - but not yet ; it proves tough for Japanese policy makers.
It seems that one of the key reasons for this dichotomy is the population. India is adding a population equivalent to Australia every year, the demand for all items - especially food - is on the rise. This results in inflation and it is not easy to control unless population growth is tamed. Moreover, the percentage of young population is very high . See more on India's population troubles at http://www.financialstrategyonline.com/2012/10/population-growth-dynamics.html
On the other hand, Japan suffers from dropping population. see http://www.upi.com/Top_News/World-News/2013/03/28/Japans-population-decline-highlighted/UPI-11001364445270/ Even within the reduced population the percentage of elderly people are about 25% who tend to a lower consumption driver
Will merger of both economies offer some kind of trade off? If not merger some kind of economic close action between both economies may help.
