India CPI Review: Inflation Cools to Historic Lows
India’s October inflation print confirms a rare moment of macro alignment—low inflation, solid growth, and room for monetary easing. The RBI now faces a high-conviction window to cut rates in December, but must stay vigilant against creeping food price risks as FY26 progresses.
India’s retail inflation slowed to just 0.25% y/y in October, the lowest in the history of the current CPI series (base year 2012), according to data released by the Ministry of Statistics and Programme Implementation. The sharp decline—from 1.54% in September—was broadly in line with market expectations and primarily driven by deflation in food prices, supportive base effects, and the full-month impact of GST rate reductions implemented in late September.
Figure 1: India CPI and WPI (% y/y)
Food inflation plunged to –5.02% y/y, down from –2.33% in September, with both urban and rural areas witnessing steep deflation (–5.18% and –4.85%, respectively). Prices of vegetables, oils and fats, fruits, eggs, cereals, and even footwear and communication services fell sharply. State-level variations were notable. While Kerala, Punjab, and Karnataka recorded mild positive inflation, large states like Uttar Pradesh, Telangana, and Madhya Pradesh witnessed outright deflation. The government’s tax policy helped amplify the disinflationary trend. The GST rate cuts on household items, consumer durables, and certain services fed into the CPI basket, reinforcing disinflation across categories.
On the wholesale side, WPI inflation also dropped to –1.21% y/y in October, underscoring the broad-based nature of the disinflation. Falling prices of crude oil, natural gas, basic metals, and electricity contributed significantly, though fuel and power costs inched up marginally.
With headline CPI now well below the RBI’s 4% target—and far under its Q3 forecast of 1.8%—expectations for a rate cut at the December MPC meeting are intensifying. Market pricing increasingly leans toward a 25-basis-point cut. We expect inflation is to rise modestly through Q4-FY26, possibly ending the year around 3.5%, barring a supply-side shock or reversal in food prices due to unseasonal rainfall or import policy shifts. Still, with GDP growth holding strong—nearly 8% in Q1 FY26—and no immediate upside pressure on food or fuel, the central bank has a rare opportunity to pre-emptively ease without jeopardising price stability.