India's retail inflation experienced a dramatic decline, dropping to a record low of 0.25% in October from 1.44% the previous month, marking one of the lowest readings in recent history. This significant decrease is primarily attributed to favorable base effects and continued deflation in food prices, according to latest government data.
Food Prices Lead Deflationary Trend
The sharp decline in overall inflation was largely driven by deeper deflation in food items, which constitute nearly 40% of the inflation basket. Food inflation plunged to -5.02% in October from -2.33% in September, exerting substantial downward pressure on the headline number.
Vegetables and pulses emerged as the biggest contributors to this deflationary trend. Vegetable inflation recorded a staggering -27.57%, while pulses and products showed inflation of -16.15%. These dramatic declines in essential food categories overwhelmed price increases in other segments of the economy.
Core Inflation Concerns and Gold Price Surge
While food prices were collapsing, gold inflation surged dramatically to 57.83% in October from 46.99% the previous month. This substantial increase in gold prices put significant upward pressure on core inflation, which excludes volatile food and fuel components.
Economists have expressed concern about this divergence, noting that the persistent rise in core inflation needs close monitoring despite the overall low headline number. The current scenario presents a complex picture for policymakers, with deflation in essential commodities coexisting with inflation in luxury and investment items.
RBI Projections and Future Outlook
The October print of 0.25% is substantially lower than the Reserve Bank of India's inflation projection of 1.8% for the October-December quarter. This marks the third time in four months that Consumer Price Index inflation has fallen below the lower tolerance limit of the RBI's 2-6% target band.
Most economists believe that inflation has likely bottomed out in October and expect a gradual rise as the favorable base effect diminishes. The RBI's own projections, released in early October, anticipate inflation shooting up to 4.0% in the January-March quarter and further accelerating to 4.5% in the April-June quarter of 2026-27.
The current low inflation trajectory suggests that unless prices rise sharply in November and December, the third quarter may end with inflation significantly undershooting the central bank's forecast once again. This development comes amid proposed changes to India's housing inflation measurement by the Ministry of Statistics and Programme Implementation, which could impact future inflation calculations.
