India’s inflation hits record low of 0.25% in October, driven by falling food prices, GST cuts

India’s retail inflation eased to a record low of 0.25% in October, sharply down from 0.54% the previous month, according to official data released Wednesday. This is the lowest inflation rate since the current data series began in 2015, and comes amid a sustained drop in food prices as well as the effects of recent Goods and Services Tax (GST) rate cuts. The drop marks the fourth consecutive month that inflation has remained below the Reserve Bank of Indias (RBI) medium-term target of 4% and reinforces a trend that has kept inflation under the RBIs upper tolerance limit of 6% for seven straight months.

Economists anticipated a decline, with a Reuters poll of 42 forecasters projecting retail inflation in October would fall to 0.48%. The actual figure is notably below this consensus. The September inflation reading was also revised downwards to 1.44%. Analysts attribute the continued moderation in prices to favourable supply conditions and base effects.

The RBI’s latest Monetary Policy Committee meeting signalled that an improved inflation outlook may allow for policy easing. Governor Sanjay Malhotra stated, “The MPC observed that the overall inflation outlook has turned even more benign in the last few months due to a sharp decline in food prices and the rationalisation of GST rates.” The central bank projected that inflation is likely to moderate further in the next fiscal year, supported by GST cuts, a positive food price outlook and improved supply.

For the full year FY26, RBI has set a projection for headline inflation at 2.6%, reduced from its previous estimate of 3.1%. Quarterly breakdowns suggest inflation will remain subdued in the near term, with estimates of 1.8% in both Q2 and Q3, rising to 4% in Q4 and 4.5% in Q1 of FY27. The risks to this outlook are described as evenly balanced, with the central bank highlighting concerns about possible geopolitical tensions and trade disruptions.

Food prices, which account for nearly half of the Consumer Price Index (CPI) basket, led the inflation decline. In October, food prices fell by 5.02% year-on-year, compared to a revised decrease of 2.33% in September. The sharp downturn has been driven by substantial declines in vegetable prices, which dropped by 27.57% following a 21.38% fall the previous month.

The central government attributed the drop in both headline and food inflation to multiple factors, including the full month’s impact of GST cuts, favourable base effect, and declines in categories such as Oils and fats, Vegetables, Fruits, Egg, Footwear, Cereals and products, Transport and Communication.

Data from the latest Household Consumption Expenditure Survey for 2023-24 showed that the share of food in the average household budget continues to decline, reflecting changes in spending patterns as inflation eases. While the headline inflation rate has remained below the RBI’s 4% target since February, economists caution that this may obscure evolving household consumption trends.

Sreejith Balasubramanian, SVP & Economist – Fixed Income, Bandhan Mutual Fund, said: October CPI at 0.25% y/y, after 1.4% in September, was slightly below our expectation of 0.4%. This was based on lower food price momentum across sub-categories, with momentum in cereals, pulses, vegetables, fruits, vegetable oils and spices being negative. Price momentum in some of the core categories (clothing & footwear, health, transport & communication ex-fuel, recreation & amusement) were also negative, likely due to GST-rate cuts. However, Core CPI (headline excluding food & beverages, fuel & light) increased to 4.4% (4.3% in September) but momentum excluding gold and silver moderated. Thus, while services inflation stayed flat at 3.2% y/y, core-goods-ex-gold-silver moderated.”

“The retail inflation came in line with expectations, softening largely due food prices even as core inflation steady at 4.4%. Going ahead, while the inflation trajectory is likely to remain benign, 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,” said Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank.