India's Retail Inflation Hits 8-Year Low of 1.54% in September 2025: Impact on Monetary Policy

Retail inflation has decreased to an 8-year low of 1.54 percent in September, marking the second time in 2025 that it has fallen below the 2 percent threshold.

New Delhi has reported that consumer prices have significantly declined, primarily due to reduced prices of vegetables, fruits, and pulses, according to government data released Monday. The consumer price index (CPI) based inflation was measured at 2.07 percent in August and 5.49 percent in September 2024, with the previous comparable low being 1.46 percent in June 2017.

This marks the second instance in 2025 where retail inflation has dropped below the 2 percent mark. The Reserve Bank of India (RBI) operates under a government mandate to maintain CPI at 4 percent, with a permissible margin of 2 percent on either side.

The National Statistics Office (NSO) stated: "There is decrease of 53 basis points in headline inflation of September, 2025 in comparison to August 2025. It is the lowest year-on-year inflation after June 2017."

Food inflation during September 2025 registered at (-) 2.28 percent, compared to (-) 0.64 percent in August and 9.24 percent in September of last year.

The NSO attributed the decline in headline and food inflation to "favourable base effect and decline in inflation of vegetables, oil and fats, fruits, pulses and products, cereal and products, egg, fuel and light."

Inflation rates varied geographically, measuring 1.07 percent in rural areas and 2.04 percent in urban regions. Kerala recorded the highest inflation rate at 9.05 percent, while Uttar Pradesh experienced deflation at (-) 0.61 percent.

In its October bimonthly monetary policy review, the RBI lowered its inflation projection for 2025-26 to 2.6 percent from the previously estimated 3.1 percent in August.

Regarding the inflation outlook for the second half of the fiscal year, the RBI noted that favorable monsoon conditions, increased kharif sowing, adequate reservoir levels, and comfortable buffer stocks of foodgrains should help maintain stable food prices.

The central bank also highlighted that the recently implemented GST rate rationalization would reduce prices across several items in the CPI basket. Overall, inflation outcomes are expected to be more moderate than projected in the August Monetary Policy Committee resolution.

Aditi Nayar, Chief Economist at ICRA, commented that the CPI inflation has reached a 99-month low in September 2025, driven by sharper-than-anticipated disinflation in food and beverages to 1.4 percent (an 81-month low).

"We expect the CPI inflation to average 2.6 percent in FY26, dampened by the GST rationalization as well as the continued benign food prices. ICRA believes that a final 25 bps rate cut is possible in December 2025," Nayar added.

Earlier this month, the RBI maintained its key interest rates as it awaited greater clarity on the impact of US tariffs and the effects of previous rate cuts and recent tax reductions.

Paras Jasrai, Associate Director at India Ratings and Research, noted that deflationary trends in food prices have continued into October 2025, with prices of key items like tomatoes, onions, potatoes, and pulses declining in double digits.

"Looking ahead, a favourable base effect is expected to further ease retail inflation in October 2025. Additionally, the impact of GST rate rationalization will provide further support," Jasrai stated.

India Ratings expects October 2025 retail inflation to be around 1 percent, potentially setting a new low in the 2011-12 series. Jasrai indicated there may be scope for another 25 basis point cut in the repo rate.

According to NSO data, inflation in 'fuel and light' during September was at 1.98 percent, down from 2.32 percent in August. Similarly, 'transport and communication' inflation decreased to 1.82 percent.

The NSO collects price data from 1,181 selected villages and 1,114 urban markets covering all states and Union Territories.