On declining inflation, improving consumer confidence

In Explained’s new weekly column, titled ‘GDP: Graphs, Data, Perspectives’, Udit Misra looks at inflation and consumer confidence, and provides key takeaways from latest RBI data.

Written by Udit Misra

New Delhi | Updated: October 3, 2025 10:02 AM IST

3 min read

The RBI’s latest surveys show that falling inflation rate has also had a salutary effect on consumer confidence across India. (Pixabay)

Since August 2023, retail inflation in India has witnessed a sharp deceleration from being close to 7% to being around or below 2% in August this year. That means the rate at which the general price level was rising has come down.

In July 2023, for instance, consumer facing prices went up 7.4% over their level in July 2022. However, this rate of increase (called inflation) has subsided sharply since then, and prices in August 2025 went up by just 2% over where they were in August 2024. The slide in inflation has been sharpest since October last year.

It is this deceleration in the inflation rate that has made it possible for the Reserve Bank of India, which is tasked with the job of maintaining price stability in the country, to start cutting interest rates. Central banks raise interest rates to curtail the demand for money and, through that route, contain high inflation.

The RBI’s latest surveys show that the falling inflation rate has also had a salutary effect on consumer confidence across India. That’s because lower inflation means better purchasing power in the hands of consumers.

The chart alongside shows how the RBI’s consumer confidence indices for rural and urban consumers have behaved since September 2023.

Consumer confidence is on the rise.

To arrive at the consumer confidence index, the RBI seeks responses on a whole host of variables such as the general economic situation, income levels, spending levels, employment situation and the price level for the current period (as compared with one year ago).

It is important to note that the level of 100 marks the point of difference between negative and positive sentiments. The area shaded green is positive, and the red-shaded area is negative sentiment territory. A value below 100 means that among the people surveyed by the RBI, more were pessimistic about the current state of affairs than optimistic.

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Three things stand out.

One, consumer confidence has improved across the country over the past few months.

Two, the rural consumer confidence index has now been in the positive territory (above 100) since March. In fact, it is now at the highest point since the RBI started the survey for rural consumers two years ago.

Three, despite an uptick, the urban consumer sentiment tells a different story. For one, it continues to languish in the negative territory. It is important to note that the last time the urban consumer confidence was in the positive territory was way back in March 2019, just as the country was about to go into the general election. In fact, the urban consumer confidence is still below where it was in March last year, in spite of the softening of inflation.

Udit Misra

Udit Misra is Senior Associate Editor at The Indian Express. Misra has reported on the Indian economy and policy landscape for the past two decades. He holds a Master’s degree in Economics from the Delhi School of Economics and is a Chevening South Asia Journalism Fellow from the University of Westminster. Misra is known for explanatory journalism and is a trusted voice among readers not just for simplifying complex economic concepts but also making sense of economic news both in India and abroad. Professional Focus He writes three regular columns for the publication. ExplainSpeaking: A weekly explanatory column that answers the most important questions surrounding the economic and policy developments. GDP (Graphs, Data, Perspectives): Another weekly column that uses interesting charts and data to provide perspective on an issue dominating the news during the week. Book, Line & Thinker: A fortnightly column that for reviewing books, both new and old. Recent Notable Articles (Late 2025) His recent work focuses heavily on the weakening Indian Rupee, the global impact of U.S. economic policy under Donald Trump, and long-term domestic growth projections: Currency and Macroeconomics: "GDP: Anatomy of rupee weakness against the dollar" (Dec 19, 2025) — Investigating why the Rupee remains weak despite India's status as a fast-growing economy. "GDP: Amid the rupee's fall, how investors are shunning the Indian economy" (Dec 5, 2025). "Nobel Prize in Economic Sciences 2025: How the winners explained economic growth" (Oct 13, 2025). Global Geopolitics and Trade: "Has the US already lost to China? Trump's policies and the shifting global order" (Dec 8, 2025). "The Great Sanctions Hack: Why economic sanctions don't work the way we expect" (Nov 23, 2025) — Based on former RBI Governor Urjit Patel's new book. "ExplainSpeaking: How Trump's tariffs have run into an affordability crisis" (Nov 20, 2025). Domestic Policy and Data: "GDP: New labour codes and opportunity for India's weakest states" (Nov 28, 2025). "ExplainSpeaking | Piyush Goyal says India will be a $30 trillion economy in 25 years: Decoding the projections" (Oct 30, 2025) — A critical look at the feasibility of high-growth targets. "GDP: Examining latest GST collections, and where different states stand" (Nov 7, 2025). International Economic Comparisons: "GDP: What ails Germany, world's third-largest economy, and how it could grow" (Nov 14, 2025). "On the loss of Europe's competitive edge" (Oct 17, 2025). Signature Style Udit Misra is known his calm, data-driven, explanation-first economics journalism. He avoids ideological posturing, and writes with the aim of raising the standard of public discourse by providing readers with clarity and understanding of the ground realities. You can follow him on X (formerly Twitter) at @ieuditmisra ... Read More

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