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India’s headline retail inflation rate, as measured by the Consumer Price Index (CPI), fell below 2 per cent again in September, with data released on Monday by the Ministry of Statistics and Programme Implementation (MoSPI) showing that it came in at an over-eight-year low of 1.54 per cent last month. A fall in vegetable prices was a key driver, although the impact of the Goods and Services Tax (GST) cut that came into effect on September 22 will reflect in the data for October, economists said.
At 1.54 per cent, CPI inflation – which measures the change in consumer prices in a month compared to the same period a year ago – in September is the lowest since it was at an all-time low of 1.46 per cent in June 2017 under the current data series. As such, the latest inflation print is the second-lowest ever.
In September, the vegetable index of the CPI was down 3.2 per cent from August, leading to a year-on-year inflation rate of -21.38 per cent. Pulses also posted a sizable negative inflation rate of -15.32 per cent, helping drag down food inflation to -2.28 per cent, the lowest since December 2018. September was the fourth month in a row that food inflation was below zero – meaning that food prices were lower compared to the same month last year.
“In rural areas, food producers continue to face lower inflation compared to urban consumers,” Paras Jasrai, an economist at India Ratings & Research, said. “Of the 23 major groups, 17 saw a decrease in their inflation rates in September compared to the previous month, the most significant drop since April 2024, indicating a broader benign inflationary trend across the consumption basket.”
Gold inflation at record high
While food prices fell in September, core inflation – or inflation excluding food and fuel items – rose to a two-year high of 4.5 per cent, as per calculations by The Indian Express, driven by a continued increase in gold prices. Core inflation is seen as an indicator of demand conditions – rising core inflation is indicative of increasing demand for goods and services.
However, the current up-tick in core inflation has been driven by surging gold prices. Gold falls under the ‘miscellaneous’ group of the CPI basket and accounts for 1.1 per cent of the weight of the consumption basket.
As per the CPI data released on Monday, gold inflation continued to rise further in September, hitting a record high of 46.87 per cent last month, up from 40.35 per cent in August.
Price of gold has been surging globally and crossed the $4,000 per ounce mark. Domestically, the price is closing in on Rs 1.3 lakh per 10 grams. Gold inflation, as measured by the CPI, has almost doubled to 35 per cent in 2025 from just over 19 per cent in 2024.
More interest rate cuts ahead
The fall in retail inflation comes after the Reserve Bank of India (RBI) on October 1 retained its policy repo rate at 5.5 per cent even as it cut its inflation forecast to 2.6 per cent. The RBI’s Monetary Policy Committee (MPC), which has reduced the repo rate by 100 basis points (bps) so far in 2025, noted in its statement that space to further support growth had opened up.
With inflation undershooting the RBI’s forecast of 1.8 per cent for July-September by around 10 bps and expected to be lower than its full-year projection, economist think the MPC is likely to reduce the repo rate further in the coming months – especially with inflation likely to fall further in October due to the GST cuts that came into effect on September 22.
At 1.54 per cent, CPI inflation in September was below the RBI’s medium-term target of 4 per cent for the eighth consecutive month.
“The disinflationary impulse from indirect tax relaxation on most goods categories is likely to be more material in October’s print, as changes took effect in late September,” Radhika Rao, Senior Economist at DBS Bank, said. “Global energy prices have also been subdued, offsetting the spillover risks from a weak rupee, while precious metals continue to stay buoyant, keeping core inflation closer to 4.5 per cent. Growth and pipeline headwinds are likely to matter more to the central bank than the price outlook at this juncture, with the dovish commentary in October leaving the door open for a rate cut by the end of 2025.”
According to Gaura Sen Gupta, Chief Economist at IDFC FIRST Bank, the preliminary estimate for CPI inflation for October – which will be released on November 12 – is a mere 0.2 per cent, which would be an all-time low. However, Sen Gupta thinks the need for an interest rate cut will only appear when growth is at risk, with the likely sources being continued US tariff issues and domestic consumption not responding to the GST rate cuts. GDP growth in April-June had jumped to a five-quarter high of 7.8 per cent. Data for the July-September quarter will be released at the end of November, days before the MPC’s next interest rate decision on December 5.
“The current bilateral tariff on India of 50 per cent can drag real GDP growth by 1 percentage point over a 12-month period. Impact will be felt on labour-intensive MSME sector which accounts for ~45 per cent of merchandise exports. The tariffs are likely to more than offset the positive impact of GST cut on growth, which is estimated at ~0.6 percentage points (over-12-month period). By the December policy, there will be some clarity on bilateral tariffs assuming the ongoing negotiations between India and US are concluded,” Sen Gupta said.
