Retail inflation slows to a decade low of 0.25% in October

India’s retail inflation slowed to a decade low of 0.25 per cent in October against 0.54 per cent in September, on a sustained fall in food prices. This marks the fourth consecutive month that inflation has stayed below the Reserve Bank of India’s (RBI) medium-term target of 4% and has been lower than the central bank’s tolerance ceiling of 6% for seven straight months.

A Reuters poll of 42 economists had forecast retail inflation in October to ease to 0.48%.

Some economists argued that a cut in the Goods and Services Tax (GST), effective from late September, also contributed to the decline. Others said this may mark the trough in inflation.

Inflation is cooling rapidly even as the latest official data showed Asia's third-largest economy grew nearly 8% in the April-June quarter, with the central bank expected to cut interest rates again next month.

Vegetable prices
Vegetable prices have fallen by double digits for six consecutive months on an annual basis, keeping overall food inflation, which accounts for nearly half of the consumer price index (CPI) basket, in check.

While inflation has been below the RBI's 4% target since February, economists say this masks shifts in household spending patterns.

The Household Consumption Expenditure Survey for 2023-24 showed the share of food in the average Indian household's budget has declined.

RBI's inflation outlook
RBI during its Monetary Policy Committee meeting last month signalled that a benign inflation backdrop provided scope for further policy easing to support growth, even as it held rates steady as expected.

The central bank said inflation has eased and is likely to moderate further in FY26, supported by GST rate cuts, a favourable outlook on food prices and improved supply prospects. However, it cautioned that geopolitical tensions and tariff-related trade disruptions could weigh on the outlook.

For the full year FY26, the RBI has projected headline inflation at 2.6%, significantly lower than the 3.1% forecast made in August. Quarter-wise estimates are: 1.8% in Q2, 1.8% in Q3, Q4 at 4% and Q1 FY27 at 4.5%. The central bank maintained that risks to the outlook are “evenly balanced.”

The RBI also noted that Core inflation has remained largely contained at 4.2% in August.

Governor Sanjay Malhotra said, "The MPC observed that the overall inflation outlook has turned even more benign in the last few months due to a sharp decline in food prices and the rationalisation of GST rates."

"Overall the benign inflation and growth trajectory does provide room for 25-50bp rate cuts. However, the festive-linked surge in retail sales may make it difficult to gauge the underlying sustainable demand in the economy and hence the timing of easing may become more difficult," Kotak Mahindra Bank's Bhardwaj added.