Retail inflation dropped to series low of 0.25% in Oct on base effects

India’s retail inflation eased sharply to a series low of 0.25 per cent in October from 1.44 per cent in September, thanks to a favorable base effect, a record 5 per cent drop in food prices, and the initial impact of GST rates’ rationalisation, according to data released by the National Statistical Office (NSO) on Wednesday. 

This marks the lowest year-on-year inflation print since the introduction of the current Consumer Price Index (CPI) series (base year 2012), with the food basket slipping deeper into deflation at (-)5.02 per cent compared with (-)2.33 per cent in the previous month. 

In rural India, retail prices slipped into deflationary zone with the NSO reporting a 0.25 per cent drop in the CPI (Rural), compared to a 1.07 per cent increase in September. Urban inflation, on the other hand, moderated from 1.83 per cent in September to 0.88 per cent in October. Rural food prices were down 4.85 per cent, while they fell 5.18 per cent in urban areas. 

 

The record downtick in price pressures is likely to create room for the Monetary Policy Committee of the RBI to cut interest rates at its upcoming review in December, said most economists.

 

October’s CPI reading is the final official print before the committee meets again from December 3 to December 5. After slashing the key interest rate by 100 basis points (bps) to 5.50 per cent between February and June, the MPC had chosen to keep interest rates unchanged for the second successive time at its last bi-monthly review which concluded on October 1,

 

October’s price rise pace of near zero per cent is far below the central bank’s inflation tolerance range of 2 per cent to 6 per cent. The Reserve Bank of India (RBI) has projected that inflation would average 1.8 per cent between October and December 2025 (Q3FY26), the same level it had projected for Q2. CPI inflation had averaged 1.74 per cent in Q2. The RBI had lowered its inflation projection for FY26 to 2.6 per cent, with Q4 expected to clock a higher average of 4 per cent, but economists expect there may a downward revision in the MPC’s inflation projections as well.   

 

Along with the first full month impact of the GST rate cuts effected from September 2022, base effects played a crucial role in moderating retail price rise, as inflation was at a high 6.21 per cent in October 2024 when food prices had surged 10.87 per cent. Economists reckon that as the favourable base effects wear out by December, inflation numbers would witness an uptick.

 

While overall inflation cooled sharply, core inflation, which excludes volatile items in the consumer basket such as food and energy, remained elevated at 4.3-4.5 per cent in October, driven primarily by a surge in precious metals.

 

Gold inflation soared to 57.83 per cent while silver witnessed a spike of 62.36 per cent amid festive demand. Inflation in personal care and effects surged to 23.88 per cent in October, while miscellaneous items’ price rise hardened to 5.71 per cent, largely due to the gold effect. Excluding precious metals like gold, core CPI inflation was at a more benign 2.5-2.6 per cent.

 

Aditi Nayar, chief economist at ICRA, reckoned that the MPC may trim its FY26 inflation forecast below 2.6 per cent, driven by the soft sequential momentum in food prices and the impact of the GST rate rationalisation. The agency reckons that this would support a 25-bps rate cut in the December 2025 policy review, unless Q2 FY2026 GDP growth surprises on the upside. 

 

“In the midst of 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,” added Rajani Sinha, chief economist at CareEdge Ratings. 

 

“While the inflation trajectory is likely to remain benign going ahead, the RBI will need to filter the festive and GST-related demand from the cyclical recovery. We remain skeptical on the sustainability of the recent pickup in economic activity and hence see some room for further monetary easing,” opined Upasna Bhardwaj, chief economist at Kotak Mahindra Bank.

 

Among individual food items, vegetable prices plunged over 27 per cent, while pulses prices eased by more than 16 per cent. However, oils and fats prices rose in double-digits once again, with an 11.17 per cent increase in October, though the pace moderated from earlier months. Madan Sabnavis attributed the fall in food prices mainly to the base effects. “In their absence, it would have been higher. Prices of vegetables in particular have increased in the market place,” he added.

 

“ICRA expects the CPI food and beverages segment to remain in the deflationary zone in November 2025, although the extent of the same may narrow, as the favourable base begins to fade away. This would push up the headline CPI inflation to above 1 per cent in November. The CPI inflation is expected to witness a sustained uptick thereafter, likely crossing the 4 per cent in Q1 FY2027, as the base turns adverse,” Nayar said.

 

“The average inflation for the year would hover around 2.4-2.6 per cent with such tendencies to continue till December before base effects wear out and inflation rises. We can expect inflation to touch 4 per cent by March 2026,” Sabnavis noted, stressing that the October number alone may not matter for monetary policy makers as it is more or less on expected lines.

 

“I think the inflation number is not really going to have an impact in terms of monetary policy because the RBI is looking at a forward-looking monetary policy, focusing on growth. The interest rates are fairly well positioned as of now.” If the CPI turns negative, it might have an impact on the nominal GDP growth number, noting that real GDP growth may continue at 7-7.3 per cent for the year, but the nominal GDP growth may be much lower, Sabnavis explained.  

 

Crisil’s principal economist Dipti Deshpande said they anticipate at least one more repo rate cut by the Reserve Bank of India in its upcoming monetary policy review.

 

Among the states, Kerala recorded the highest inflation rate at 8.56 per cent, mainly due to the higher weight of gold in the index, followed by Jammu and Kashmir at 2.95 per cent, while many large states such as Maharashtra, Tamil Nadu, and Karnataka showed moderate inflation rates of around 0.89 per cent to 2.34 per cent.