India’s retail inflation eased below the lower end of the Reserve Bank of India's 2-6% target range to 1.54% in September from 2.07% in August, driven by persistent cooling in food prices. This marks the lowest inflation level since June 2017.
A Reuters poll of 38 economists had forecast retail inflation in September to ease to 1.70%.
Food inflation, which accounts for nearly half of the Consumer Price Index (CPI) basket, decreased to -2.28% in September from a decline of 0.69 last month.
Food prices have dropped sharply in recent months from last year's high levels driven by a sustained slide in vegetable costs, which have fallen by double digits since April.
Price pressures have stayed below the Reserve Bank of India’s medium-term target of 4% for seven straight months.
While economists had expected the base effects that largely helped keep a lid on inflation this year to fade in August, the official data showed food prices remained constrained compared with a year earlier - a trend that was likely sustained in September.
“The soft September CPI inflation continues to point towards the persistence of benign inflationary environment. While much of the moderation has been led by food prices, the core inflation has surged due to housing. We expect the pass through of GST cut to be more visible in the upcoming October reading likely pushing the print to sub-1%," said Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank.
Inflation rates for rural and urban are -2.17% and -2.47%, respectively.
Fuel and light prices slowed to 1.98% in September from 2.43% in August.
Vegetable prices
Vegetable prices declined 21.38% after a 15.92% fall in the previous month. Softer food prices prompted the RBI this month to trim its inflation forecast.
The US has imposed tariffs of up to 50% on Indian goods but Prime Minister Narendra Modi's tax cuts on everything from soaps to cars are expected to offset the impact on growth and ease inflation during the September–December festival season.
"We expect the CPI inflation to average 2.6% in FY2026, dampened by the GST rationalisation as well as the continued benign food prices. ICRA believes that a final 25 bps rate cut is possible in December 2025. with its timing contingent on the degree of further transmission of the cumulative 100 bps rate cuts to the credit market, as well as the growth implications of the GST rejig and tariffs. We expect downward revisions in the expected growth trajectory to drive the rate cut decision, rather than the benign CPI inflation outlook, with the latter being driven by tax policy changes and not weaker demand," Aditi Nayar, Chief Economist, ICRA Ltd, said.
RBI’s inflation outlook
RBI during its Monetary Policy Committee meeting earlier this 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.
A Reuters poll of 38 economists had forecast retail inflation in September to ease to 1.70%.
Food inflation, which accounts for nearly half of the Consumer Price Index (CPI) basket, decreased to -2.28% in September from a decline of 0.69 last month.
Food prices have dropped sharply in recent months from last year's high levels driven by a sustained slide in vegetable costs, which have fallen by double digits since April.
Price pressures have stayed below the Reserve Bank of India’s medium-term target of 4% for seven straight months.
While economists had expected the base effects that largely helped keep a lid on inflation this year to fade in August, the official data showed food prices remained constrained compared with a year earlier - a trend that was likely sustained in September.
“The soft September CPI inflation continues to point towards the persistence of benign inflationary environment. While much of the moderation has been led by food prices, the core inflation has surged due to housing. We expect the pass through of GST cut to be more visible in the upcoming October reading likely pushing the print to sub-1%," said Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank.
Inflation rates for rural and urban are -2.17% and -2.47%, respectively.
Fuel and light prices slowed to 1.98% in September from 2.43% in August.
Vegetable prices
Vegetable prices declined 21.38% after a 15.92% fall in the previous month. Softer food prices prompted the RBI this month to trim its inflation forecast.
The US has imposed tariffs of up to 50% on Indian goods but Prime Minister Narendra Modi's tax cuts on everything from soaps to cars are expected to offset the impact on growth and ease inflation during the September–December festival season.
"We expect the CPI inflation to average 2.6% in FY2026, dampened by the GST rationalisation as well as the continued benign food prices. ICRA believes that a final 25 bps rate cut is possible in December 2025. with its timing contingent on the degree of further transmission of the cumulative 100 bps rate cuts to the credit market, as well as the growth implications of the GST rejig and tariffs. We expect downward revisions in the expected growth trajectory to drive the rate cut decision, rather than the benign CPI inflation outlook, with the latter being driven by tax policy changes and not weaker demand," Aditi Nayar, Chief Economist, ICRA Ltd, said.
RBI’s inflation outlook
RBI during its Monetary Policy Committee meeting earlier this 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.
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