India's retail inflation slips to 99-month low of 1.54% in September

After a minor uptick in August, India’s retail inflation moderated significantly in September to hit a 99-month low of 1.54 per cent, with food prices dropping 2.3 per cent from a year ago, marking the most benign print for the volatile and essential component of the household spending basket since December 2018.

 

With September’s price rise pace coming under the central bank’s inflation tolerance range of 2 per cent to 6 per cent, the average inflation through the second quarter (Q2) of 2025-26 (FY26) is 1.74 per cent, a tad below the Reserve Bank of India (RBI) projection of 1.8 per cent for Q2 as well as Q3.

 

 

Receding inflation pressures could lend more comfort for the Monetary Policy Committee of the RBI, which chose to keep interest rates unchanged for the second time at its bi-monthly review that concluded on October 1, to focus on growth. The RBI has lowered its inflation projection for FY26 to 2.6 per cent, with Q4 expected to clock a higher average of 4 per cent.  

 

Paras Jasrai, associate director, India Ratings & Research, said October’s retail inflation could be around 1 per cent, the lowest in the current CPI series, thanks to the GST rate cuts and a favourable base as inflation stood at 6.2 per cent in October 2024. The agency reckons there is scope for another 25 basis points (bps) repo rate cut by the RBI, contingent on upcoming data reflecting effective GST adjustments.

 

“We expect downward revisions in the expected growth trajectory to drive the (RBI’s) rate cut decision, rather than the benign CPI inflation outlook, with the latter being driven by tax policy changes and not weaker demand,” said Aditi Nayar, chief economist at ICRA.

 

Along with relief on the food front, particularly on vegetables, fruits, pulses and cereals, base effects also had a cooling effect on the latest Consumer Price Index (CPI). Inflation stood at 5.5 per cent in September 2024, with food prices rising over 9.2 per cent.

 

 

The National Statistics Office (NSO) estimated that rural inflation cooled sharply from 1.69 per cent in August to 1.07 per cent in September, while urban inflation eased from 2.47 per cent to 2.04 per cent. Food prices were 2.17 per cent lower in rural India, and 2.47 per cent down in urban centres.

 

Among individual food items, oil and fats prices rose in double-digits again, with an 18.34 per cent rise in September, but vegetable prices fell over 21 per cent while pulses prices eased by more than 15per cent.

 

However, core inflation, which excludes volatile items in the consumer basket such as food and energy, surged to a 25-month high of 4.6 per cent after remaining stable at around 4.1 per cent over the past seven months. Crisil chief economist Dharmakirti Joshi attributed this to housing a spike in housing prices, which increased at a two-year high pace of 4 per cent, and gold inflation which hit a 10-year high of 46.9%.

 

“Although food prices remain in check so far, the impact of excess rains in major kharif crop-producing states on agricultural production will bear watching,” Joshi noted.  

 

Inflation in personal care and effects surged from 16.6 per cent in August to 19.4 per cent in September, while miscellaneous items’ price rise also hardened from 5 per cent to 5.35 per cent.

 

Economists reckon that the recent GST rate rationalisation will dampen retail inflation in the coming months of FY26, although the extent of relief will depend on the amount of tax relief producers pass through to consumers.

 

“We expect the pass through of GST cuts to be more visible in the upcoming October reading, likely pushing the print to sub-1 per cent. However, the festive linked surge in retail sales may make it difficult to gauge the underlying sustainable demand in the economy and hence the timing of easing may become more difficult,” remarked Upasna Bhardwaj, chief economist, Kotak Mahindra Bank.

 

“We estimate that the GST rate changes could lower CPI inflation by 70-90 basis points (bps) annually under the current basket, assuming effective pass-through to consumers,” said Rajani Sinha, chief economist at CARE Ratings.

 

Both Sinha and Nayar expressed concern about the excess rainfall and flooding in some parts of the country in late August and early September as it is expected to have damaged standing crops.  “The impact of above-normal rains in October on the kharif crop harvest and yields remains a key monitorable,” Nayar added.

 

Among the states, Kerala recorded the highest inflation rate at 9.05 per cent, followed by Jammu and Kashmir at 4.38 per cent, while many large states such as Maharashtra, Gujarat, and Tamil Nadu showed moderate inflation rates of around 1.7 per cent to 3 per cent.