India’s September retail inflation declined to the lowest in over eight years. However, a recent report by UBS noted that the full impact of the GST revision, is likely to be seen in the October data. UBS estimates that “headline inflation could fall by around 1% if the GST rate cut is fully passed through.” This, they believe could also lead to at least another 25 bps rate cut this fiscal.
UBS pegs FY26 inflation at 2.4%
UBS expects India’s headline inflation to average 2.4% in FY26. “We expect the headline CPI to average 2.4%YoY in FY26, marginally below RBI’s revised forecast of 2.6%YoY,” the report stated.
According to UBS, the key factors that could help inflation reain benign include-
-Softening food inflation (favourable agricultural production on good monsoons
-Low energy prices offsetting the spillover impact of weaker rupee
-Concerns over China’s excess capacity offloading in Asia amidst US tariff uncertainty
-The GST rate cut (effective from late September) would help in keeping inflation benign this year
UBS sees room for 25–50 bps rate cut in FY26
The global brokerage believes there is room for a 25-50 basis point repo rate cut in the rest of FY26. Tanvee Gupta, Chief India Economist of UBS, said, “For India, we continue to see space for another 25-50 bps of rate cuts for the rest of FY26, primarily to support growth, contingent upon the unfolding of trade-related uncertainties.”
Favourable monsoon, GST cut to keep prices under control: UBS
USB pointed out several factors that could keep inflation in check this year — softening food inflation supported by good monsoons, low energy prices offsetting the weaker rupee, China’s excess capacity impacting Asian markets, and the GST rate cut.
Core inflation rises to 4.5% in September on higher gold, housing costs
While the headline number eased, core inflation—which excludes food and fuel—rose 40 basis points to 4.5% in September, led by higher gold prices and housing costs. Gold prices jumped 14% in rupee terms, while housing inflation reached its highest level in two years.
Core inflation, excluding gold, also moved up slightly by 20 basis points to 3.2% year-on-year. Price pressures were more pronounced in urban areas at 2%, compared to 1.1% in rural areas.
