Retail inflation eases to 8-year low of 1.54% in September on cooling food prices

Economists expect another 25 bps rate cut in December amid benign prices

October 14, 2025

Retail Inflation at 8-Year Low — CPI Falls to 1.54% in September on Cheaper Food

Vegetables, pulses, and fruits lead the decline; rural inflation at 1.07%

India’s retail inflation dropped to an over eight-year low of 1.54 per cent in September 2025, slipping below the Reserve Bank of India’s (RBI) comfort zone, driven by sharp declines in the prices of vegetables, pulses, and fruits, according to data released by the National Statistics Office (NSO) on Monday.

The consumer price index (CPI)-based inflation stood at 2.07 per cent in August and 5.49 per cent in September 2024. The last time inflation was lower was in June 2017, when it touched 1.46 per cent.

This is also the second time in 2025 that retail inflation has fallen below the 2 per cent mark. Under its mandate, the government requires the RBI to keep CPI inflation at 4 per cent, with a tolerance band of ±2 per cent.

“There is a decrease of 53 basis points in headline inflation in September 2025 compared to August 2025. It is the lowest year-on-year inflation since June 2017,” the NSO said.

Food Prices Lead the Fall

Food inflation turned negative, contracting 2.28 per cent year-on-year in September, compared to –0.64 per cent in August and 9.24 per cent a year ago.

The NSO attributed the decline to a favourable base effect and lower prices of vegetables, oils and fats, fruits, pulses, cereals, eggs, and fuel.

Rural inflation stood at 1.07 per cent, while urban inflation was higher at 2.04 per cent. Among states, Kerala recorded the highest inflation at 9.05 per cent, while Uttar Pradesh reported the lowest at –0.61 per cent.

RBI Sees Softer Outlook

In its latest monetary policy review, the RBI lowered its inflation forecast for FY26 to 2.6 per cent, down from 3.1 per cent projected in August, citing strong monsoon progress, robust foodgrain stocks, and the impact of recent GST rate rationalisation, which has reduced prices of several goods.

“The overall inflation outcome is likely to be softer than what was projected in the August MPC resolution,” the RBI noted.

Experts Expect Further Easing

Economists welcomed the latest figures, calling them a sign of durable price stability.
Aditi Nayar, Chief Economist at ICRA, said CPI inflation dropped to a 99-month low in September, led by a sharper-than-expected decline in food and beverage inflation to 1.4 per cent.

“We expect CPI inflation to average around 2.6 per cent in FY26, aided by GST rationalisation and benign food prices. A final 25-basis-point rate cut is possible in December 2025,” she said.

Paras Jasrai, Associate Director at India Ratings and Research (Ind-Ra), said deflation in food prices has continued into October, with double-digit declines in tomatoes, onions, potatoes, and pulses.

“A favourable base effect and the GST rate rationalisation will further ease inflation in October. Retail inflation could fall to around 1 per cent — a new low in the current CPI series,” Jasrai added.

Category-wise Breakdown

Inflation in ‘fuel and light’ moderated to 1.98 per cent in September from 2.32 per cent in August, while ‘transport and communication’ inflation eased to 1.82 per cent.

The NSO said it collects price data from 1,181 villages and 1,114 urban markets across all states and Union Territories to compile the CPI.

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