India's Inflation Crashes to 13-Year Low of 0.25% — What's Driving the Fall? The steep decline was powered by a broad-based GST reduction, a favourable base effect, and a sharp moderation in food prices, which have tumbled to their lowest level in over a decade.

India's fight against inflation seems to have reached a historic milestone. Retail inflation, measured by the Consumer Price Index (CPI), plunged to just 0.25% in October 2025, down sharply from 1.44% in September — the lowest reading since 2012, according to data released by the Ministry of Statistics and Programme Implementation (MoSPI) on Wednesday.

The steep decline was powered by a broad-based GST reduction, a favourable base effect, and a sharp moderation in food prices, which have tumbled to their lowest level in over a decade.

"India's retail inflation eased sharply to a record low of 0.25% in October 2025, compared to 1.44% in September 2025, significantly below Bloomberg's median poll estimate of 0.40%. This sharp moderation, driven by a fall in food prices and a favourable base effect, brings average CPI inflation during April–October 2025 to 1.92%, well below 4.81% recorded in the same period last year," said Ankita Pathak, Macro Strategist and Global Equities Fund Advisor at Ionic Asset.

Food Prices Drive the Cooldown

The biggest driver of this disinflation is food. Food inflation, which was already in the negative zone at -2.33% in September, further dropped to -5.02% in October, marking the lowest food inflation print in 13 years. In year-on-year terms, food inflation has swung dramatically — from 10% in October 2024 to -5.02% in October 2025, a stunning reversal that underscores the impact of improved agricultural supply and lower global commodity prices.

Core inflation, which excludes volatile food and fuel prices, also softened marginally to 4.4% in October, from 4.5% in September, signalling that price pressures are cooling across sectors.

"The October CPI print confirms that inflation has effectively bottomed out, reflecting the combined impact of GST rationalisation and sustained supply-side moderation. This provides the RBI with sufficient headroom to support growth, yet any move will likely be calibrated and further data-driven," said Mahendra Patil, Founder and Managing Partner, MP Financial Advisory Services LLP.

Impact on Government Finances

While consumers may cheer lower inflation, the story is more complex for the government. Ultra-low inflation means nominal GDP growth could decelerate, impacting tax collections, especially from GST and income taxes, both of which rely on price-linked expansion. Moreover, if deflationary pressures persist, corporate profits and wages could stagnate, further limiting revenue buoyancy.

On the other hand, lower inflation will reduce the government's interest outgo on inflation-indexed securities and ease subsidy pressures, particularly on food and fertilizers. The RBI's dividend transfer to the Centre could also be bolstered if bond yields soften in response to the disinflation trend.

In essence, the government gains short-term fiscal breathing space but sustained disinflation could complicate its fiscal math if it dampens nominal growth and tax momentum.

RBI's Next Move: Room to Cut or Reason to Wait?

The latest data clearly gives the Reserve Bank of India (RBI) some policy space. With inflation now well below its 4% medium-term target, the central bank could consider a rate cut in the early part of 2026 to stimulate investment and credit demand. However, it will tread carefully.

The key risk lies in the narrowing interest rate differential between India and the United States. The Federal Reserve's December policy move is being watched closely. If the Fed maintains higher rates while India cuts, the gap between the two economies' yields could shrink — prompting capital outflows, putting pressure on the rupee, and potentially triggering imported inflation.

That's why, even with inflation at record lows, the RBI is unlikely to rush. It will weigh the domestic growth imperative against external stability risks.

"A premature cut could further compress the rate differential, risking capital flow volatility. Moreover, lingering concerns over imported inflation and evolving geopolitical tensions will keep the RBI cautious as it balances growth priorities with macro-financial stability," Patil added.

The Bigger Picture

India's disinflation is both an achievement and a warning. The sharp fall to 0.25% highlights successful price management through tax rationalisation and supply-side measures. But it also signals an economy where demand recovery remains fragile, and global uncertainties continue to cast a shadow.

If managed well, this could mark the start of a new low-inflation, low-rate growth cycle, one that supports investment, fiscal stability, and purchasing power. But if the disinflation deepens into deflation, it could dampen the government's fiscal outlook and complicate the RBI's delicate balancing act.