NEW DELHI – India’s retail inflation rate plummeted to a record low of 0.25% in October 2025, according to data released by the Ministry of Statistics and Programme Implementation. The figure, the lowest since the current CPI series began in 2012, was primarily driven by a sharp -5.02% deflation in food prices. This places inflation well below the Reserve Bank of India's (RBI) lower tolerance limit of 2%, intensifying pressure on the central bank to consider further interest rate cuts to support the economy.

Sectoral Breakdown: Food Plunge Offsets Steady Core Inflation

The dramatic slowdown in headline inflation was largely a story of collapsing food prices. The Consumer Food Price Index (CFPI) entered deep deflationary territory, with prices falling 5.02% year-on-year in October. This represents a sharp decline of 269 basis points from September's level.

Vegetables and Pulses Lead Decline: Vegetable prices crashed by 27.57%, while pulses became cheaper by 16.15%. This provided significant relief to households, as food items constitute nearly half of the average Indian consumer's expenditure basket.

Urban-Rural Divide: The food price crash had a more pronounced effect in rural India, where the overall inflation rate turned negative at -0.25%. Urban inflation was recorded at 0.88%, reflecting a lower dependence on food and higher costs in services like housing.

Core Inflation Persists: Despite the low headline number, core inflation—which excludes volatile food and fuel prices—remained elevated at 4.33% in October. This indicates that price pressures persist in sectors like services and manufactured goods, presenting a complex picture for policymakers.

The dramatic slowdown in headline inflation was largely a story of collapsing food prices, with the Consumer Food Price Index entering deep deflationary territory as prices fell 5.02% year-on-year in October. This represents a sharp decline of 269 basis points from September's level, driven by a 27.57% crash in vegetable prices and a 16.15% drop in pulses costs.

The food price crash had a more pronounced effect in rural India, where the overall inflation rate turned negative at -0.25%, compared to urban inflation of 0.88%, reflecting a lower dependence on food and higher costs in services. Despite the low headline number, core inflation—which excludes volatile food and fuel prices—remained elevated at 4.33% in October, indicating that price pressures persist in sectors like services and manufactured goods and presenting a complex picture for policymakers.

Drivers of Disinflation: GST Cuts, Base Effects, and Improved Supply

Economists and the government attribute the historic low inflation to a confluence of three major factors.

Impact of GST Rationalization: The government's sweeping overhaul of the Goods and Services Tax (GST) in late September, which simplified the structure into two main rates, played a critical role. Yuvika Singhal, an Economist at QuantEco Research, noted that the GST restructuring provided a "disinflationary impulse," with the full transmission expected to reduce CPI inflation by approximately 130 basis points.

Favorable Base Effect: A statistical phenomenon known as the base effect significantly contributed to the low number. October 2024 had a high inflation base of 6.21%, meaning that current prices appeared much cheaper in comparison.

Improved Agricultural Supply: A healthy monsoon and improved crop yields led to a bumper harvest, significantly boosting the supply of vegetables, cereals, and pulses and pulling down prices.

Policy Conundrum: The RBI's Delicate Balancing Act

The record-low inflation has thrust the RBI's Monetary Policy Committee (MPC) into a complex situation, strengthening the case for further monetary easing.

Mounting Pressure for Rate Cuts: The inflation rate has now spent nine consecutive months below the RBI's 4% target and three months below the 2% lower tolerance band. This has led several economists to anticipate a rate cut in the upcoming December policy review. "We see the likelihood of a 25 basis points repo rate cut in December," said Dipti Deshpande, Principal Economist at Crisil Ltd.

Growth vs. Inflation Dynamics: However, the decision is not straightforward. India's economy is growing robustly, with GDP growth exceeding 7% in the last quarter. Some analysts argue that with such strong growth, the economy does not require immediate stimulus. The RBI has also highlighted external risks, such as the 50% tariffs imposed by the U.S. on Indian goods and the rupee's depreciation, as reasons for caution.

RBI Governor's Stance: RBI Governor Sanjay Malhotra has acknowledged the space for further monetary easing but has emphasized that the timing "will be determined by the central bank's Monetary Policy Committee".

Economic Implications and Future Trajectory

The current low-inflation environment presents a mixed bag of benefits and challenges for the Indian economy.

Consumer Relief and Real Wages: For consumers, the decline in prices, especially for food and items affected by GST cuts, has increased purchasing power. Real wage growth, which adjusts nominal wages for inflation, has turned positive for many households, providing a boost to household finances.

Subdued Nominal GDP Growth: A key concern for the government is the impact on nominal GDP, which is used for budget calculations. Low inflation suppresses nominal GDP growth, potentially making it "more difficult for the government to achieve its fiscal deficit target," which was based on higher nominal growth assumptions.

Inflation Expected to Bottom Out: Most analysts agree that the 0.25% reading likely represents the bottom of the current disinflationary cycle. "We expect CPI inflation to bottom out in Q3 FY26 and pick up gradually thereafter, though the outlook remains benign," stated Yuvika Singhal of QuantEco Research. The fading of favorable base effects and the volatile nature of food prices are expected to lead to a gradual rise in inflation in the coming months.