India’s inflation falls to series low: What it means for rates, markets

By: Team India Tracker

The headline figure was driven by three forces—a 5% fall in food prices, the first full-month impact of GST cuts, and a favourable base. Food inflation slid further to –5.02% from –2.33% in September.

he retail inflation collapsed to a decade-low 0.25 per cent in October, down sharply from 1.44 per cent in September, as food prices tumbled and a favourable base effect kicked in. The latest National Statistical Office (NSO) data marks the weakest inflation print since the Consumer Price Index (CPI) was rebased in 2012, signalling a rare moment where price pressures across the economy have almost evaporated. 

The headline number reflects three forces working simultaneously: a record 5 per cent monthly decline in food prices, the first full-month impact of GST rate rationalisation, and a statistical base that magnified the disinflation. Food inflation plunged deeper into deflation at –5.02 per cent from –2.33 per cent in September. 

Rural deflation deepens 

The drop in inflation was broad-based. Rural CPI slipped into deflation at –0.25 per cent, compared with a 1.07 per cent rise the previous month, while urban inflation slowed to 0.88 per cent from 1.83 per cent. 

Food prices fell sharply in both segments: rural food inflation was down 4.85 per cent and urban food inflation fell 5.18 per cent. Vegetables were the biggest driver, sliding more than 27 per cent, while pulses eased over 16 per cent. Oils and fats were the outlier, rising 11.17 per cent, though the pace has softened from previous months. 

RBI gets breathing room 

October’s reading lands just weeks before the RBI’s Monetary Policy Committee (MPC) meets from December 3–5. With inflation sitting well below its 2 per cent–6 per cent comfort zone, the central bank suddenly has fresh room to consider lowering rates after holding them steady at its last two meetings. 

The RBI has already trimmed the repo rate by 100 basis points this year—from 6.50 per cent to 5.50 per cent between February and June. October’s near-zero print increases the probability of another 25-basis-point cut in December, especially as economic momentum shows signs of cooling and global risks—from a softening US economy to stalling trade talks—continue to cloud the outlook. 

The RBI had projected inflation to average 1.8 per cent in Q3 FY26, the same as Q2’s 1.74 per cent. For the year, it expected 2.6 per cent. Those projections are now almost certainly headed lower. 

Base effect did the heavy lifting  

A large part of October’s disinflation reflects last year’s spike: inflation in October 2024 was 6.21 per cent, with food inflation at 10.87 per cent. As this soft base fades by December, headline inflation is expected to edge back up. 

Economists caution that the sharp fall doesn’t fully reflect real-time market prices. “Without the base effect, inflation would have been higher,” said Madan Sabnavis of Bank of Baroda, noting that vegetables have actually turned costlier in the market despite the index reflecting a drop. 

Core inflation sends mixed signals 

Core inflation—which strips out food and fuel—stayed elevated at 4.3 per cent–4.5 per cent, but this was heavily distorted by precious metals. Gold prices shot up 57.83 per cent, and silver by 62.36 per cent, driven by festive-season buying. 

Excluding gold and silver, core inflation was far more benign at 2.5 per cent–2.6 per cent, suggesting that underlying consumer demand is stable rather than overheated. 

Another category showing pressure was personal care and effects, jumping 23.88 per cent—again a result of festive consumption and GST-related resets. 

For borrowers 

A December rate cut is now more likely than not. Cheaper loans for homes, cars, and small businesses could follow early in 2026. 

For markets 

Equity traders may see the soft inflation print as a green light for easier liquidity conditions. Bond yields could decline further if the MPC signals a dovish path. 

For the government 

Lower inflation eases political pressure and strengthens the macro story ahead of the Union Budget. But it also complicates revenue assumptions tied to nominal GDP growth. 

For households 

The relief from falling food prices is real—but temporary. As the base effect fades by December, costs are likely to tick up again. 

The Bottom Line 

The inflation fall is a statistical windfall as much as a real one. But combined with easing food prices, slower global demand, and cautious consumer sentiment, it hands the RBI its cleanest argument in months for a December rate cut. 

The key question now is whether this is the start of a durable low-inflation phase—or simply a brief pause before pressures return.