India’s retail inflation slumped to a historic low of 0.25% in October, led by the first full month’s impact of GST rate cuts, a favourable base effect and subdued prices of vegetables and fruits.

This is the lowest rate of inflation measured in the current series of the Consumer Price Index (CPI), or since January 2012. It is also the fourth straight month that inflation has remained below the Reserve Bank of India’s medium-term target of 4%.

The cooling of inflation is likely to lead to an interest rate cut in the December monetary policy. The RBI-led monetary policy committee (MPC) will, however, also look at the GDP growth figures before taking a final call on the repo rate.

The CPI-based inflation was 6.21% in October 2024, implying a base year advantage. In the September month this year, retail inflation was 1.44% in September.

Food inflation, which account for nearly half of the CPI basket, contract 5.02% in October against a revised fall of 2.33% in September, according to the data released by the National Statistics Office (NSO).  The steep fall in food prices was led by vegetables and pulses and products, inflation for which came in at -27.57% and -16.15%, respectively.

“Food inflation has come down mainly due to base effects,” said Madan Sabnavis, chief economist at Bank of Baroda. “In their absence, it would have been higher. Prices of vegetables in particular have increased in the market place.”

Food inflation in October last year was 9.7%.

The RBI is likely to pare its CPI inflation projection for FY2026 further from 2.6% due to softening of food prices and impact of GST rate rationalisation on several items in the CPI basket. “This, along with the dovish tone of the October 2025 policy document, would support a 25-bps rate cut in the December 2025 policy review, unless Q2 FY2026 GDP growth surprises on the upside,” said Aditi Nayar, chief economist at ICRA.

Dipti Deshpande, principal economist at Crisil, also expects at least one more repo cut this fiscal. 

“Given the sharper-than-expected fall in food inflation, expectations of healthy food supplies for the rest of the fiscal, benign global crude prices and the GST rate cut benefits on mass consumption items, we expect CPI inflation to average 2.5% this fiscal, significantly lower than last fiscal’s 4.6%. We also anticipate at least one more repo rate cut by the RBI in its upcoming monetary policy review,“ she said.

Amid the sharp surge in gold inflation (~58% in October), core inflation eased only marginally to 4.3% in October, from 4.4% in September, whereas core inflation excluding gold saw a sharper decline—falling to 2.6% from 3% in September. “Core inflation excluding gold should continue to serve as a better indicator of demand-side price pressures and for assessing the impact of GST rate changes,” Deshpande added.