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India's retail inflation eased to 1.54% in September, its lowest in eight years, driven largely by falling food prices. Core inflation, however, rose due to higher housing costs and precious metals prices. Economists attribute the decline to seasonal food price corrections, high base effects, and GST rate cuts, while noting subdued global energy prices also played a role. Experts suggest that this benign inflation trend could create room for RBI rate cuts, though festive season demand and the timing of credit market transmission will influence future monetary policy decisions.
India's annual retail inflation slowed to 1.54% in September, marking an eight-year low, according to government data released earlier this week. This was down from 2.07% in August and below market expectations of 1.7%, reflecting easing food prices. Advertisement
Senior economists noted that the dip in headline inflation was influenced by seasonal corrections in perishable food costs. Radhika Rao, senior economist at DBS Bank, Singapore, explained that the drop pushed inflation below the Reserve Bank of India's target band for the second time this quarter. She highlighted that the disinflationary impact of recent indirect tax relaxations on most goods categories is expected to be more visible in the upcoming October inflation print. Rao also observed that subdued global energy prices mitigated the risks from a weak rupee, while precious metals remained buoyant, keeping core inflation above 4%.
Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank, Mumbai, added that while food prices drove much of the moderation, core inflation had increased due to rising housing costs. She noted that the GST cuts would likely push October inflation below 1%. Bhardwaj mentioned that the overall benign inflation and growth trends could provide space for a 25-50 basis point rate cut, though festive season retail sales might complicate assessments of sustainable demand.
Aditi Nayar, Chief Economist at ICRA, Gurugram, forecasted that CPI inflation would average around 2.6% in FY2026, supported by continued moderate food prices and GST rationalisation. She suggested that any potential 25bp rate cut by the RBI in December 2025 would depend more on growth implications and credit market transmission rather than the current low inflation, which is largely influenced by tax policy adjustments.
Kunal Kundu, India economist at Societe Generale, Bengaluru, noted that the sharp decline in food prices had resulted in an inflation figure well below the lower bound of the RBI's 2-6% target range. However, he pointed out that this was partly due to a high base effect, and core inflation showed rising pricing pressures, particularly in housing. Kundu suggested that the RBI is likely to remain cautious and could announce a 25bp rate cut in December, while monitoring how GST reductions affect retail prices.
Raj Singh, economist at Anand Rathi Institutional Equities, Mumbai, highlighted that deflation in vegetables and pulses contributed to the decline, whereas core inflation increased, with housing reaching a two-year high and personal care items rising 19.4% year-on-year due to higher precious metal prices. He added that with headline inflation expected to hover around 2%, the RBI still retains the option for future rate cuts.
Source Reuters
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