Retail Inflation Falls Sharply to 1.54% in September, Lowest Since 2017; Food Prices Drive Decline The sharp moderation in inflation was largely contributed by a favourable base effect as well as a general downslide in prices of staple foodstuffs such as vegetables, fruits, pulses, edible oils, cereals, eggs, and fuel and light

India's retail inflation, which is the change in prices of goods and services in the month of September plunged significantly to 1.54% in September 2025, from 2.07% in August, the lowest since June 2017, as per data published by the National Statistical Office (NSO) on Monday. The sharp moderation in inflation was largely contributed by a favourable base effect as well as a general downslide in prices of staple foodstuffs such as vegetables, fruits, pulses, edible oils, cereals, eggs, and fuel and light.

Food price inflation, which represents close to 46% of the consumption basket, was at its lowest level since June 2018. Interestingly, rural food price inflation was at 2.17%, with urban food price inflation falling into deflation at -2.47%. In total, food price inflation fell by 164 basis points in September versus August.

"The easing of inflation was supported by a favourable base effect and moderation in food prices," said Rajni Sinha, Chief Economist at CareEdge. "With this decline, inflation for Q2FY26 averaged 1.7%, slightly below the RBI's projection of 1.8%," she added.

According to Rajeev Juneja, President of PHD Chamber of Commerce The record-low inflation offers a strong foundation for India's next phase of growth. It is a moment of opportunity to revitalize private investment, stimulate consumption, and accelerate job creation," said Mr. Rajeev Juneja, President, PHDCCI in a press statement issued on Monday.

Core and Sectoral Trends

As the rise in prices of goods and services has slowed down, core inflation which is inflation excluding volatile energy and food prices increased moderately to 4.5%, mainly because of a jump in precious metal prices. Excluding precious metals, however, the core CPI remained contained at 3.0%. At the same time, deflation in the food basket intensified to 1.4%, supported by declines in the prices of vegetables, pulses, and spices.

The following are the key sectoral inflation numbers for September 2025:

Outlook and Policy Implications

In the future, food inflation will continue to be benign, with a favorable base effect and good monsoon. Yet, there are risks from the delayed withdrawal of the monsoon and rains in some parts, which can cause damage to crops. Double-digit inflation in edible oils is still an area of concern on account of import dependence, poor sowing, and high international prices.

On the external front, international commodity prices will probably remain muted in the face of subpar global growth, China's overcapacity, and OPEC's increase in crude oil production. The latest rationalisation of GST rates is likely to benefit inflation, with estimates of a possible reduction of 70–90 basis points a year on the assumption of effective pass-throughs to consumers.

With food inflation tempering and demand pressures in check, we estimate average FY26 inflation at 2.4%," Sinha said. "This provides the RBI with additional elbow room to nurture economic growth, particularly in the face of global headwinds and trade tensions. If growth signals continue to soften, the recent inflation print paves the way for a potential 25 basis point rate reduction in December.

The steep drop in inflation makes the argument for a dovish monetary policy more compelling, as the central bank weighs controlling inflation against the necessity to boost domestic demand and insulate it from foreign volatility.

"The trend of deflation in food prices has continued through October 2025 (until 12 October 2025), with prices of main items like tomatoes, onions, potatoes, and pulses falling in double digits. In the coming months, a beneficial base effect (October 2024: 6.2%) will continue to soften retail inflation in October 2025. Moreover, the influence of rationalization of the GST rate will add to the support," Paras Jasrai, Associate Director at India Ratings and Research stated.

Still, a lot will ride on the complete pass-through of the effective GST rates. Therefore, Ind-Ra anticipates retail inflation in October 2025 to be at 1%, a fresh 2011-12 series low. The near-term path of inflation is anticipated to be weak with some pick-up beginning from the later part of FY26. There is room for one more round of 25 bps of repo rate cuts in our opinion, but so much would be dependent on incremental data that has price in the effective GST rates as well.

Also, one area of concern is persistently high double-digit inflation in edible oils that according to many experts warrants close monitoring considering weak sowing trends, import dependence, and elevated.

"Nevertheless, the government's reduction in basic customs duty on imported edible oils and recent GST rate cuts on certain edible fats should help cushion price pressures. On the external front, global commodity prices are broadly expected to remain benign given the weak global growth prospects, overcapacity in China and OPEC's decision to raise crude oil output," credit rating agency CareEdge said in its note on Tuesday.