Retail inflation plunged to a series-low of 0.25% in October, due to a favourable base effect, drop in the prices of vegetables, cereals, fruits, and the impact of decline in the Goods and Services Tax (GST), according to data released by the National Statistics Office (NSO) on Wednesday.
The inflation rate fell much below the lower end of Reserve Bank of India’s (RBI) tolerance band of 2%, increasing the chances of a rate cut in December, or later in the second half of the fiscal.
This is the third instance in the last four months when the inflation breached the lower end of RBI’s tolerance band; it remained below the central bank’s medium-term target of 4% for the ninth consecutive month. Inflation had eased below 2% in September (revised to 1.44%) and July (1.61%) too.
October inflation is lowest in the current Consumer Price Index (CPI) series with 2012 as the base year. Sequentially, the index was, however, marginally higher in October from September level.
Core inflation too inched up to 4.33% from 3.65% a year ago and 4.26% in September. This was primarily due to increase in the prices of precious metals such as gold and silver, rather than rise in prices of industrial or consumer items, indicating demand build-up is not strong. Excluding precious metals, the core inflation would be a benign 2.6%, Vivek Kumar, Economist at QuantEco Research said.
Food inflation has gone deeper into the negative zone, coming in at (-)5.02% in October, on account of a favourable base effect (10.87%) and decline in the prices of onion, potato, tomato and in other food categories. For the fifth month in a row, the consumer food price index has fallen on an year-on-year basis.
Madhavi Arora, Chief Economist at Emkay Global Financial Services said the November CPI is currently tracking 0.9% with available high frequency mandi data and other trackers, with downside risk owing to the remainder of GST pass-through.
The food and beverages segment is expected to remain in a deflationary zone in November, Aditi Nayar, chief economist at ICRA, said. She, however, said the extent of the same may narrow, as the favourable base begins to fade away (+9.7%/+8.2% in Oct/Nov 2024). “The CPI inflation is expected to witness a sustained uptick thereafter, likely crossing the 4.0% in Q1 FY2027, as the base turns adverse,” Nayar said.
The economists also expect RBI’s Monetary Policy Committee to pare its CPI inflation projection for 2025-26 further, driven by the soft sequential momentum in food prices as well as the impact of the GST rate rationalisation on several items in the CPI basket.. The RBI lowered its inflation projection for 2025-26 to 2.6% from 3.1% estimated in August.
“This, along with the dovish tone of the October 2025 policy document, would support a 25-bps rate cut in the December 2025 policy review, unless Q2 FY2026 GDP growth surprises on the upside,” Nayar said.
CareEdge Ratings wrote: “Going forward, inflation is projected to average 0.9% in Q3 before rising to 3.1% in Q4 FY26. With food inflation subdued, we project an average inflation rate of 2.1% for FY26. From a monetary policy perspective, moderating inflation provides the RBI with greater room to focus on supporting economic growth amid continued external headwinds and uncertainties surrounding the trade negotiations with the US. If growth weakens in H2 FY26, the latest inflation readings could create scope for a rate cut.”
Experts have pointed out that inflationary expectations aren’t moderating even amid benign inflation prints over the last few months. According to the Reserve Bank of India, inflation expectations decreased to 8.7% in September, 2025 from 9% in July of 2025. It had averaged 10.71% between 2009 and 2025, reaching an all-time high of 16% in September of 2013 and a low of 7.9% in July of 2019.