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Consumer prices rose a mere 0.25 per cent in October compared to the same month last year as the reduction in the Goods and Services Tax (GST) rates and a favourable base effect helped drive down the headline retail inflation rate to an all-time low, according to government data released on Tuesday. Rural inflation was in the negative territory for the first time ever, with overall consumer prices 0.25 per cent lower in October compared to last year. In urban areas, retail prices were up 0.88 per cent.
In addition to the GST rate cuts, inflation in October as per the Consumer Price Index (CPI) also moderated sharply from 6.21 per cent in October 2024 thanks to the favourable base effect as well as a decline in food prices, data from the Ministry of Statistics and Programme Implementation (MoSPI) showed.
“The decline in headline inflation and food inflation during the month of October 2025 is mainly attributed to full month’s impact of decline in GST, favourable base effect and to drop in inflation of Oils and fats, Vegetables, Fruits, Egg, Footwear, Cereals and products, Transport and Communication, etc,” the Statistics Ministry said in a statement. Food inflation in October stood at (-) 5.02 per cent — also the lowest ever in the current CPI data series. The negative food inflation rate, or deflation, implies food prices in the retail market in October were 5 per cent lower compared to a year ago.
The fall in headline CPI inflation to close to zero was expected, with economists broadly predicting that it would fall below 0.5 per cent. Some expected it to come in as low as 0.2 per cent due to the lower GST rates that came into effect on September 22 following the GST Council’s decision in early September to collapse the four-slab indirect tax rate structure to just two tiers — 5 per cent and 18 per cent — and a demerit rate of 40 per cent rate for super luxury, sin, and demerit goods. The sweeping GST rate cuts were targeted at common-use items, including those in the food category.
October inflation internals
While inflation fell sharply, economists contend the impact of the GST rate cuts has not played out fully as the lower taxes have yet to be completely passed on to consumers in the form of lower prices. This is particularly true for core inflation — or inflation calculated excluding the prices of food and fuel items. In October, core CPI inflation was broadly unchanged from September at 4.4 per cent, calculations by The Indian Express showed.
“By November the impact on core inflation should be more visible. The same would hold for oils in the food basket,” Madan Sabnavis, Bank of Baroda’s Chief Economist, said.
Food inflation dropping sharply was particularly aided by a favourable base, which helped bring down the inflation number despite some prices trending up in markets, Sabnavis noted. While food prices were down 5.02 per cent year-on-year in October as per the data, the Consumer Food Price Index of the CPI was down only 0.2 per cent on a month-on-month basis, or compared to September. In fact, prices were higher on a month-on-month basis for meat and fish, eggs, sugar, and prepared meals, snacks, and sweets.
The ‘miscellaneous’ category of the CPI — which includes several non-food household goods and services — saw its inflation rise to a 31-month high of 5.71 per cent, although this was due to gold inflation hitting a new record of 57.83 per cent and silver inflation surging to a new high of 62.36 per cent.
“Education and health continue to witness higher inflation in the region of 3.5-3.9 per cent due to revision in fees and charges by various institutions. However, health should come down once the lower GST rates are transmitted,” Sabnavis added.
Room for interest rate cuts?
The fall in inflation to unprecedented levels could increase pressure on the Reserve Bank of India (RBI) to lower interest rates next month. The central bank’s six-member Monetary Policy Committee (MPC) left the policy repo rate unchanged at 5.5 per cent for the second meeting in a row on October 1 after having slashed it by 50 basis points (bps) in June. The committee is scheduled to next meet December 3-5.
At its last meeting, the MPC had noted that while macroeconomic conditions and the outlook had “opened up policy space” to further support growth, the impact of the 100 bps worth of rate cuts enacted in the first half of 2025, global trade policy related uncertainties, and measures taken by the government was still playing out. As such, the rate-setters wished to wait and watch for greater clarity “before charting the next course of action”.
However, the latest CPI data may not really matter for monetary policy as inflation has fallen along expected lines and is seen rising to the RBI’s medium-term target of 4 per cent in early 2026 once the favourable base effect fades away.
As per the RBI’s latest forecast, CPI inflation in FY26 is seen averaging 2.6 per cent. So far in the first seven months of the fiscal, it has averaged 1.9 per cent. In quarterly terms, the RBI expects CPI inflation to average 1.8 per cent in October-December before rising to 4 per cent in January-March 2026 and 4.5 per cent in April-June 2026. It averaged 1.7 per cent in July-September, 10 bps lower than the central bank had forecast.
