Retail Inflation Falls To Multi-Year Low Of 0.25% In October; Strengthens Hopes For RBI Rate Cut In December

India’s retail inflation dropped to a record low of 0.25% in October, compared to 1.44% in August, owing to a favorable base and a continued decline in food inflation. This is the third time the Consumer Price Index (CPI) has fallen below the Reserve Bank of India’s lower limit of its 2–6% target band. However, according to media reports, economists expect inflation to buck the trend and rise as the base effect fades.

The ease in inflation in October was primarily driven by a deeper deflation in food items, which constitute nearly 40% of the inflation basket. Food inflation fell to -5.02% in October, from -2.33% in the previous month. Vegetable prices declined by 27.57%, while pulses and products prices plunged by 16.5%. Meanwhile, gold inflation stood at 57.83% last month, compared to 46.99% in September, posing upward pressure on core inflation.

Easing Inflation Makes Room For Softer Monetary Policy

According to the latest RBI projections, inflation is expected to rise to 4% in January–March, despite the current easing trend, and further to 4.5% in the quarter ending June. The multi-year low of 0.25% has reinforced hopes of further rate cuts at the December 3–5 Monetary Policy Committee meeting, where the rate-setting panel of the RBI is widely expected to lower the repo rate by 25 basis points to 5.25%.