Economists expect retail inflation to fall further, brightening prospects of a rate cut.
The Consumer Price Index (CPI) based inflation was 2.1% in August and 5.5% in September 2024.
“Easing of inflation was supported by a favourable base effect and moderation in food prices,” said Rajani Sinha, chief economist at CareEdge Ratings.
Food inflation remained in negative territory for the fourth consecutive month, falling by 2.3% in September, lowest since December 2018. It had declined by 0.6% in August.
“Inflation could inch below 1% in October supported by goods and service tax (GST) rate cuts and lower food inflation,” said Sakshi Gupta, principal economist at HDFC Bank.
India Ratings and Research (Ind-Ra) also expects inflation to be around 1%, a new low in the 2011-12 series. Earlier this month, the Reserve Bank of India‘s Monetary Policy Committee (MPC) kept the policy rate steady at 5.5%. Economists expect a rate cut in December policy meeting.
Gupta said, “If growth momentum disappoints – based on high frequency indicators during the festive season, possibility of a 25 basis points cut in December remains high.”
Average inflation in the second quarter of FY26 was 1.7% compared to RBI’s estimate of 1.8%.
Effective September 22, the GST council approved a shift to two-slab structure (5% and 18%), lowering tax rates on various household items and consumer durables.
Radhika Rao, executive director at DBS Bank, said, “Growth and pipeline headwinds are likely to matter more to the central bank than the price outlook at this juncture, with the dovish commentary in October leaving the door open for a rate cut by the end of 2025.”
Rural inflation slowed to 1.1% year-on-year in September compared to 1.7% in August, while urban inflation fell to 2% from 2.5% over the same period.
Out of 22 major states and union territories, nine recorded a higher inflation than the national average. Kerala led with 9.1% inflation, followed by Jammu and Kashmir (4.4%), Karnataka (3.3%), Punjab (3.1%), and Tamil Nadu (2.7%).
ET BureauExpected to slide further, can lead to 25 bps rate cut in December, say experts; vegetable prices down 21.4%
Food and Core inflation
Vegetable prices fell 21.4% year-on-year in September, while pulses inflation was down by 15.3%. Onion prices dropped by 49.9%, while potato prices fell by 37.3%. Tomato prices declined by 6.1%.
Within food, oils and fats recorded the highest inflation of 18.3%. “This has been pushed up by higher global prices and depreciating rupee,” said Madan Sabnavis, chief economist at Bank of Baroda.
Core inflation, however, rose to a two-year high of 4.5% in September, mainly due to higher gold prices. Gold inflation was at 46.9% in September.
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