India's retail inflation cooled to an eight-year low of 1.54 percent in September 2025, down from 2.07 percent in August, according to government data released on Monday. This marks the lowest level since June 2017, when inflation stood at 1.46 percent, and comes below market expectations of 1.7 percent, as predicted in a Reuters poll.
The sharp fall in inflation is mainly attributed to a significant drop in food prices, particularly vegetables, along with a favourable base effect. Food prices fell by 2.28 percent year-on-year in September, compared to a 0.64 percent decline in August. Notably, vegetable prices plunged 21.38 percent, building on a 15.92 percent drop in the previous month. Prices of other essentials like oils, fruits, pulses, cereals, and eggs also fell.
The decline pulled inflation below the Reserve Bank of India’s (RBI) 2%-6% tolerance band for the second time in three months, after a brief dip below 2 percent in July. The RBI, which has already cut rates by 100 basis points this year, is now expected to reduce interest rates by another 25 basis points in its December policy meeting.
At its October review, the RBI held rates steady at 5.5 percent but signalled that there was room for a further cut, especially as it revised its inflation forecast for FY25 downward to 2.6 percent from 3.1 percent.
Core inflation, which excludes food and energy items, stood at 4.5 percent in September, up slightly from 4.1 percent in August, driven by rising gold prices and housing costs. However, a recent cut in consumer taxes, effective from September 22, is expected to ease core inflation starting in October.
Despite U.S. tariffs of up to 50 percent on Indian exports, domestic tax cuts on goods ranging from soaps to cars are likely to support consumer demand and economic growth during the festive season.
Reflecting strong domestic activity, the RBI also raised its GDP growth forecast to 6.8 percent, reinforcing India’s position as the fastest-growing major economy globally.
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