India’s Retail Inflation Drops to 1.54% in September, Lowest in Over Eight Years

India’s retail inflation eased to 1.54% in September 2025, marking the lowest level since June 2017. This significant decline is primarily attributed to a sharp drop in food prices, including vegetables, fruits, pulses, and cereals. The easing inflation has raised expectations of a potential interest rate cut in the coming months to support economic growth.

Key Drivers of Inflation Decline:
The Consumer Price Index (CPI) inflation fell from 2.07% in August to 1.54% in September, driven by a 21.38% drop in vegetable prices and continued deflation in food prices for the fourth consecutive month. This trend has been supported by a favorable base effect, as food inflation had been high in the same period last year. Additionally, the government’s Goods and Services Tax (GST) rate cuts have contributed to moderating inflationary pressures.

Regional Variations:
Rural areas experienced a more pronounced decline in inflation, with rates falling to 1.07%, compared to 2.04% in urban regions. This disparity highlights the varying impacts of inflation across different demographics and regions.

Core Inflation Trends:
While overall inflation has decreased, core inflation, which excludes food and energy prices, increased to 4.5%. This rise is attributed to higher gold prices and housing costs. However, recent consumer tax cuts are expected to ease core inflation starting October.

Implications for Monetary Policy:
The Reserve Bank of India (RBI) has revised its inflation forecast for the fiscal year down to 2.6% and raised its economic growth projection to 6.8%. Given the easing inflation, the RBI may consider a 25 basis-point rate cut in its December review to further support economic growth.

Conclusion:
The significant decline in retail inflation in September 2025 reflects improved price stability in India. While food prices have contributed to this easing, the rise in core inflation indicates ongoing challenges. The RBI’s potential interest rate cut could provide additional support to the economy, especially in Tier 2 cities where consumers are more sensitive to price changes.