India’s Retail Inflation Falls to Eight-Year Low at 1.54% in September

Consumer Price Index Hits Multi-Year Low

India’s headline retail inflation, measured by the Consumer Price Index (CPI), dipped to 1.54% in September, the lowest in over eight years, according to data released Monday by the Ministry of Statistics and Programme Implementation (MoSPI).

The decline was primarily driven by falling vegetable prices, while the impact of the Goods and Services Tax (GST) rate cut implemented on September 22 is expected to further temper inflation in October. The September figure is just above the record low of 1.46% seen in June 2017 under the current CPI series, making it the second-lowest on record.

Paras Jasrai, economist at India Ratings & Research, noted, “Of the 23 major CPI groups, 17 showed lower inflation in September compared to August, reflecting a broad-based easing in price pressures across the consumption basket, particularly in rural areas.”

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Gold Prices Push Core Inflation Higher

While overall inflation has eased, core inflation, which excludes food and fuel, climbed to a two-year high of 4.5%, driven largely by surging gold prices.

Gold, which constitutes 1.1% of the CPI basket under the ‘miscellaneous’ category, saw inflation rise to 46.87% in September, up from 40.35% in August. Domestic gold prices are approaching Rs 1.3 lakh per 10 grams, with global prices crossing the $4,000 per ounce mark.

“This surge in gold prices is largely behind the rise in core inflation, rather than a broader demand-driven increase,” analysts said.

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Implications for RBI Policy

The latest data comes after the Reserve Bank of India (RBI) retained its policy repo rate at 5.5% on October 1, while lowering its inflation forecast for FY26 to 2.6%. The Monetary Policy Committee (MPC) has already cut rates by 100 basis points in 2025, leaving room for additional support to boost growth.

Economists predict further rate cuts, particularly given that the GST cuts in September are likely to push October inflation even lower. Radhika Rao, Senior Economist at DBS Bank, said, “The disinflationary impact of tax relaxation will be more visible in October, while subdued global energy prices offset rupee depreciation. The RBI is likely to focus more on growth rather than inflation at this stage.”

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Outlook for October and Beyond

Gaura Sen Gupta, Chief Economist at IDFC FIRST Bank, estimates October CPI inflation could fall to just 0.2%, an all-time low. However, she cautioned that interest rate adjustments will depend on growth trends, particularly if US tariffs and muted domestic consumption offset the benefits of GST cuts.

India’s GDP growth for April-June hit a five-quarter high of 7.8%, with July-September data due at the end of November, ahead of the RBI’s next policy review on December 5. Sen Gupta added, “The ongoing 50% bilateral tariff on India could reduce real GDP growth by about 1 percentage point over the next 12 months, primarily affecting labor-intensive MSMEs, potentially offsetting the positive effects of GST cuts.”

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Conclusion

September’s inflation data reflects a benign price environment for consumers, aided by falling food prices and tax relief. However, the surge in gold prices and external trade risks highlight the nuanced challenges for policymakers balancing growth and inflation in the coming months.