India’s Retail Inflation Drops to 1.54% in September, Lowest in Over Eight Years

India’s retail inflation eased sharply to 1.54% in September 2025, marking its lowest level in more than eight years, according to government data released on October 13. The latest reading, down from 2.07% in August, reflects a continued moderation in consumer prices, primarily driven by a deeper-than-expected decline in food and beverage inflation.

According to Aditi Nayar, Chief Economist at ICRA, inflation in food and beverages dropped to 1.4%, an 81-month low, offsetting the sequential rise seen in other categories such as miscellaneous goods, which rose to 5.35%. The increase in gold and silver prices also contributed to the uptick in this segment. “The CPI inflation eased to a 99-month low due to a sharper-than-anticipated disinflation in food and beverages, despite price increases in select categories,” Nayar noted.

Food Prices Lead the Disinflationary Trend

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The food basket continued to be the primary driver of the inflation slowdown. Data showed that food inflation slipped into deeper deflation at -2.28%, the weakest level since June 2017. Vegetables and pulses remained in deflation for the eighth consecutive month, with prices down 21.4% and 15.3%, respectively.

However, other items such as personal effects saw a steep rise in prices, touching 19.4%, the highest since the beginning of the data series. The surge coincided with higher prices of gold and silver, which touched new highs in October.

GST Rationalisation and RBI Forecasts Signal Further Stability

Economists believe that price pressures are likely to remain subdued in the coming months, supported by the recent rationalisation of GST rates, which is expected to reduce costs for a wide range of consumer goods. An analysis by Moneycontrol indicated that GST revisions could impact up to 14% of the inflation basket.

The Reserve Bank of India (RBI) has also turned more optimistic on inflation. Earlier this month, the central bank revised its FY26 inflation projection downward from 3.1% to 2.6%, citing improving supply conditions and easing cost pressures.

Madhavi Arora, Chief Economist at Emkay Global Financial Services, noted that the latest print aligns with expectations. “We see a further undershoot of around 30-40 basis points in RBI’s FY26 inflation forecast of 2.6%, given the recent GST cuts and stable food prices,” she said.

RBI Governor Sanjay Malhotra echoed a similar sentiment, stating that the recent GST rate reductions would help lower prices across several CPI components, resulting in a softer inflation outlook compared to August projections.

Scope for Further Policy Easing

With inflation well below the RBI’s medium-term target of 4%, analysts expect the central bank to maintain its focus on supporting economic growth. Economists anticipate a final 25 basis point rate cut in the December 2025 policy meeting, following cumulative rate reductions of 100 basis points earlier this year.

Nayar added that CPI inflation is likely to average around 2.6% in FY26, influenced by GST rationalisation and sustained moderation in food prices. “The timing of the next rate cut will depend on how effectively the previous reductions transmit to the credit market and the broader impact of the GST restructuring,” she said.

Conclusion

India’s inflation trajectory remains comfortably within the RBI’s tolerance band, aided by falling food prices and tax reforms. With macroeconomic stability improving and price pressures easing, the focus now shifts to growth momentum and the policy space available for further monetary easing in the months ahead.