India’s retail inflation cooled sharply in September 2025 to 1.54%, marking its lowest level in over eight years and falling below the Reserve Bank of India’s (RBI) 2–6% target range. The drop was largely driven by a continued decline in food prices, particularly vegetables, which have been on a downward trend since April.
According to government data, food inflation, which makes up nearly half of the Consumer Price Index (CPI) basket, fell to -2.28% in September from 0.69% in August. Analysts attribute this to improved supply conditions and stable monsoon distribution that helped ease pressure on household budgets.
A Reuters poll of 38 economists had expected inflation to fall to 1.7%, but the official figures came in even lower, signaling a stronger-than-anticipated moderation in price pressures.
Over the past seven months, inflation has stayed under the RBI’s medium-term target of 4%, allowing room for policy flexibility.
“The soft September CPI inflation points to a persistently benign environment. While food prices have eased, core inflation remains elevated due to housing,” said Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank.
Vegetable prices fell 21.38%, extending their previous month’s decline of 15.92%, while fuel and light prices slowed to 1.98%. Inflation in rural and urban areas dropped to -2.17% and -2.47%, respectively.
Economists say the inflation downturn may give RBI scope for a rate cut later this year.
Aditi Nayar, Chief Economist at ICRA Ltd, noted, “We expect CPI inflation to average around 2.6% in FY2026, supported by benign food prices and GST rationalisation. A 25 bps rate cut could be possible by December 2025.”
However, global headwinds remain. The US tariffs of up to 50% on Indian goods could pressure exports, though domestic tax cuts announced by PM Modi covering essentials and automobiles are expected to offset inflationary risks during the festive season.
RBI, during its latest Monetary Policy Committee meeting, reaffirmed its stance on maintaining price stability while supporting economic growth, signalling that India’s inflation outlook remains comfortably anchored for now.
