Thursday, 20 Nov, 2025
Food inflation, which accounts for nearly half the CPI basket, contracted sharply. Food prices fell 5.02 percent year-on-year in October, compared with a revised decline of 2.33 percent in September. Image Source: IANS
The decline in inflation comes at a time when India’s economy continues to show strong momentum.
India’s retail inflation fell to a record low of 0.25 percent in October, down sharply from 1.54 percent in September, according to government data released on Wednesday. The steep decline was driven by a significant fall in food prices as well as the impact of recent cuts in Goods and Services Tax (GST) rates, which helped reduce the prices of automobiles and various daily-use consumer items.
This marks the fourth consecutive month that inflation has stayed below the Reserve Bank of India’s medium-term target of 4 percent and the seventh straight month that it has remained within the central bank’s tolerance band. October’s figure is also the lowest recorded since the current Consumer Price Index (CPI) series began in 2015. The inflation number for September was revised slightly downward to 1.44 percent.
Food inflation, which accounts for nearly half the CPI basket, contracted sharply. Food prices fell 5.02 percent year-on-year in October, compared with a revised decline of 2.33 percent in September. This is the steepest fall observed in the existing CPI series. The government attributed the overall decline in inflation to the full impact of GST reductions, a favourable base effect, and price drops across several categories including oils and fats, vegetables, fruits, eggs, footwear, cereals, and transport and communication services.
Vegetable prices saw one of the sharpest movements, plunging 27.57 percent in October after a 21.38 percent fall in September. Prices in this category have now recorded double-digit declines for six consecutive months, helping keep overall food inflation subdued. Inflation in rural and urban areas also remained weak. Rural inflation was recorded at minus 4.85 percent, while urban inflation stood at minus 5.18 percent. By contrast, the fuel and light category posted a positive inflation rate of 1.98 percent.
The decline in inflation comes at a time when India’s economy continues to show strong momentum. Official data indicates that Asia’s third-largest economy grew nearly 8 percent in the April–June quarter, and the easing inflation backdrop has strengthened expectations that the RBI may consider another rate cut in its next policy meeting. Some economists, however, caution that the low headline inflation figures may obscure changes in household spending behaviour. The Household Consumption Expenditure Survey for 2023–24 shows that the share of food in the average family’s budget has declined, which can influence how CPI movements are interpreted.
In its recent Monetary Policy Committee meeting, the RBI kept rates unchanged but noted that the broad moderation in inflation provides room for future policy easing. The central bank highlighted that inflation is likely to moderate further in the financial year 2025–26, supported by GST rationalisation, a favourable food price outlook, and improved supply conditions. For the full FY26 period, the RBI has projected headline inflation at 2.6 percent, significantly below the 3.1 percent forecast made in August. It expects inflation at 1.8 percent in both the second and third quarters, rising to 4 percent in the fourth quarter, and further to 4.5 percent in the first quarter of FY27. While the RBI views risks to the inflation outlook as evenly balanced, it warned that geopolitical tensions and trade-related disruptions could still pose challenges.
Source: Ministry of Statistics and Programme Implementation
Suvodeep Rakshit, Chief Economist at Kotak Institutional Equities, said, "I stick with my annual average of 2.1 percent for FY26. I’m not getting into FY27, but just to complete the FY26 part, if you look at the next few prints, I think for the next print we should be close to 1 percent, and then till March, it gradually keeps increasing to roughly around 3.5 percent. That’s the trajectory I’m looking at for the rest of FY26. Of course, the assumption here, and I think it’s a fair one, given the monsoon, etc. is that food prices are not likely to see any kind of sharp pickup over the next few months."
Core inflation, which excludes food and fuel, remained stable at around 4.2 percent in August. RBI Governor Sanjay Malhotra said the central bank is encouraged by the increasingly benign inflation trend in recent months, driven mainly by a sharp decline in food prices and the rationalisation of GST rates.
Among the larger states, Kerala, Punjab, and Karnataka reported inflation in positive territory, whereas states like Uttar Pradesh, Madhya Pradesh, and Telangana experienced declines in prices.
Devang Shah, Head of Fixed Income at Axis AMC, said, "I think the market is now expecting a rate cut in December. Our view is that we would see a very high probability of a 25-basis-point cut in December. Government bond yields are actually, I think, somewhere down the line because, traditionally, across various cycles in fixed income markets, they don’t react to the last rate cut and in fact, we see a sell-off after the last rate cut."
