Retail inflation hits over 8-year low of 1.54 pc in September

Retail inflation decreased to its lowest level in more than eight years in September, registering at 1.54 percent, and fell below the comfort zone set by the Reserve Bank of India (RBI), primarily due to the reduced prices of vegetables, fruits, and pulses, according to data released by the government on Monday (October 13).

In August, the consumer price index (CPI)-based inflation was 2.07 per cent. In September 2024, it was 5.49 per cent. The previous low was in June 2017 when 1.46 per cent was recorded.

Second time in 2025

It is for the second time in 2025 that retail inflation has fallen below two per cent. The government has asked the RBI to maintain the CPI at four per cent, allowing for a margin of two per cent on either side.

“There is a decrease of 53 basis points in headline inflation for September 2025 in comparison to August 2025. It is the lowest year-on-year inflation after June 2017,” the National Statistics Office (NSO) said.

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Year-on-year food inflation during September 2025 was (-) 2.28 per cent compared to (-) 0.64 per cent in August, and 9.24 per cent in September last year.

What NSO further said

According to the NSO, the decline in headline inflation and food inflation in September this year was mainly attributed to favourable base effect and decline in inflation of vegetables, oil and fats, fruits, pulses and products, cereal and products, egg, fuel and light.

The NSO data also said that inflation in rural India was 1.07 per cent while that in the urban areas was at 2.04 per cent.

The highest inflation recorded was in Kerala at 9.05 per cent, while the lowest was in Uttar Pradesh at (-) 0.61 per cent.

The RBI, in its October bimonthly monetary policy, lowered its inflation projection for 2025-26 to 2.6 per cent from 3.1 per cent estimated in August.

RBI optimistic about second half of fiscal

Regarding the inflation outlook for the second half of the fiscal, the central bank said that healthy progress of the south-west monsoon, higher kharif sowing, adequate reservoir levels and a comfortable buffer stock of foodgrains should keep food prices benign.

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It said that the recently implemented GST (goods and services tax) rate rationalisation would lead to a reduction in prices of several items in the CPI basket. Overall, the inflation outcome is likely to be softer than what was projected in the August MPC resolution, primarily on account of the GST rate cuts and benign food prices.

Commenting on the data, Aditi Nayar, chief economist, ICRA, said the CPI inflation eased to a 99-month low in September 2025, pulled down by sharper-than-anticipated disinflation in food and beverages to 1.4 per cent (an 81-month low), despite several other categories recording a sequential uptick in year-on-year inflation prints.

“We expect the CPI inflation to average 2.6 per cent in FY26, dampened by the GST rationalisation as well as the continued benign food prices. ICRA believes that a final 25 bps rate cut is possible in December 2025, with its timing contingent on the degree of further transmission of the cumulative 100 bps rate cuts to the credit market, as well as the growth implications of the GST rejig and tariffs,” she said.

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Earlier this month, the RBI expectedly left its key interest rates unchanged as it waited for greater clarity on the impact of US tariffs, as well as the play out of earlier rate cuts and recent tax reductions.

Paras Jasrai, associate director at India Ratings and Research, said the deflationary trend in food prices has persisted into October 2025 (as of October 12, 2025), with prices of key items such as tomatoes, onions, potatoes, and pulses declining in double digits.

'GST rationalisation will support'

“Looking ahead, a favourable base effect (October 2024: 6.2 per cent) is expected to further ease retail inflation in October 2025. Additionally, the impact of GST rate rationalisation will provide further support. However, much will depend on the full pass-through of the effective GST rates,” he said.

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Ind-Ra expects retail inflation in October 2025 to be around one per cent, a new low in the 2011-12 series.

Jasrai said there is a scope for another round of 25bps cuts in repo rate in their view. However, a lot would depend on the incremental data which have been baked into the effective GST rates as well, he added.

According to NSO, inflation in 'fuel and light' during September was at 1.98 per cent, as against 2.32 per cent in the preceding month.

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Inflation in 'transport and communication' at 1.82 per cent during September was also lower than in August.

The NSO collects price data from selected 1,181 villages and 1,114 urban markets covering all states and Union Territories.

(With Agency inputs)