India’s annual retail inflation dropped sharply to a record low of 0.25% in October 2025, down from a revised 1.44% in September, according to official government data. This marked the lowest point in the consumer price index (CPI) series, signaling a near-deflationary environment in the country. Analysts point to easing food prices, GST rate reductions, and base effects as key drivers of this historic decline.
A Reuters poll had projected retail inflation at 0.48%, indicating that the October print was even softer than market expectations.
Key Drivers Behind the Retail Inflation Decline
Food and Beverage Prices Lead Disinflation
The largest contributor to the October drop in retail inflation was the Food & Beverages (F&B) segment, which experienced a deflation of 3.7%, compared to 1.4% in September. According to Aditi Nayar, Chief Economist at ICRA, this accounted for 116 basis points of the 120-basis-point reduction in headline CPI between September and October.
High-frequency data show that price corrections occurred across perishables, pulses, cereals, and other essential commodities, driving the disinflationary trend.
Impact of GST Cuts and Base Effects
Economists also highlighted the role of Goods and Services Tax (GST) reductions and favourable statistical base effects in further lowering retail inflation. Rajeev Sharan of Brickwork Ratings noted that these factors contributed to easing input cost pressures, supporting corporate margins, and strengthening debt-servicing capacity.
Core Inflation Trends
While headline CPI fell sharply, core inflation, which excludes volatile food and fuel prices, edged up slightly to 4.4%, mainly due to rising gold prices. Excluding gold, silver, petrol, and diesel, core inflation moderated to 2.64% in October from 2.98% in September, according to Teresa John, Lead Economist at Nirmal Bang.
Analysts view the softening of core inflation as temporary, with base effects expected to reverse in the coming months.
Implications for RBI Monetary Policy
The Reserve Bank of India (RBI) may respond to this disinflationary trend with further monetary easing. Several economists anticipate a 25 basis points (bps) repo rate cut in December 2025, with a possible additional cut of 25 bps in February 2026.
- Madan Sabnavis, Chief Economist at Bank of Baroda, projected that average retail inflation for FY26 will hover around 2.4–2.6%, potentially rising to 4% by March 2026 as base effects wear off.
- Kunal Kundu from Societe Generale warned of a major rebound in November inflation, driven by base effect reversals, but expects average FY27 inflation to remain below the RBI’s median target.
- Sachchidanand Shukla, Group Chief Economist at Larsen & Toubro, highlighted that the near-deflationary climate could continue through November, marking the absolute floor before inflation begins to climb again.
Economic and Fiscal Considerations
While low inflation is positive for consumers and corporate margins, economists caution about potential risks:
- Prolonged disinflation may weigh on rural incomes and domestic demand, potentially affecting overall economic growth.
- Devendra Pant of India Ratings and Research noted that strong deflationary conditions are not ideal from a fiscal perspective, even as India’s economic growth remains robust, with Q2 FY26 GDP growth expected at 7.2%.
- Analysts also emphasized that RBI will need to carefully filter festive and GST-related demand when calibrating future monetary policy.
Outlook for Inflation and the Economy
Most economists agree that October 2025 marks the low point in the current inflation cycle, with trends likely to reverse in the coming months due to base effects and rising prices in key categories. However, the disinflationary environment offers an opportunity for the RBI to implement measured rate cuts to support growth without stoking excessive inflation.
As India navigates this period of low inflation, the balance between sustaining economic growth, managing rural incomes, and maintaining price stability will remain critical in monetary policy decision-making.
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