In October, India's retail inflation experienced a significant decline, dropping to an unprecedented 0.25% from 1.54% in September. This level of inflation is the lowest recorded in the last decade, largely attributed to a considerable decrease in food prices alongside recent Goods and Services Tax (GST) rate reductions. The decrease marks the fourth consecutive month that inflation has remained below the Reserve Bank of India's (RBI) medium-term target of 4%, and it has been under the central bank's upper tolerance limit of 6% for an impressive seven months.
A survey of economists had anticipated a slightly higher inflation rate of around 0.48% for October. The present inflation rate is also the lowest since the current data series began in 2015, using 2012 price levels as a reference point. September's inflation figure has been revised downward to 1.44%.
Food prices, which play an essential role in determining the Consumer Price Index (CPI), recorded a year-on-year decline of 5.02% in October. This is a significant drop compared to the previous month’s adjusted fall of 2.33%. The contribution of collapsing food prices, alongside the GST adjustments, resulted in lower prices for various goods, such as automobiles and everyday products.
The government noted that the decrease in overall inflation, especially food inflation, can be primarily linked to the impact of the GST cuts, favorable base effects, and reduced costs in several categories including oils and fats, vegetables, cereals, and transportation services.
While the Indian economy is displaying robust growth, with recent reports showing an approximate 8% growth in the April-June quarter, inflation rates for urban and rural sectors have been reported at -4.85% and -5.18% respectively. Additionally, inflation in the fuel and light category stood at 1.98% for October.
Vegetable prices demonstrated a noteworthy reduction of 27.57% compared to the prior year, on top of an already impressive decline of 21.38% in September. This consistency in double-digit declines is critical for maintaining control over food inflation, which constitutes a substantial portion of the CPI.
Economists observing the inflation trends have noted that while the figures appear to indicate a decrease, shifts in consumer spending habits must be accounted for. Recent surveys indicated a declining portion of household budgets spent on food items.
In its latest monetary policy statements, the RBI acknowledged the beneficial inflation environment, indicating room for potential interest rate cuts in response to these developments. Predictions for the entirety of FY26 project headline inflation at 2.6%, a notable decrease from initial forecasts of 3.1%. Quarterly estimates include a further dip to 1.8% in the second and third quarters. However, potential risks such as geopolitical tensions could still present challenges to this outlook.
RBI Governor Sanjay Malhotra remarked that improved inflation and growth trajectories suggest the possibility for interest rate reductions, but noted the complexities introduced by consumer behavior during festive periods, which may mask underlying demand trends efficiently.