India’s Retail Inflation Slumps to 8-Year Low at 1.54% in September; Gold Prices Surge, RBI May Consider Further Rate Cuts

By Editor in Chief On Oct 14, 2025

India’s headline retail inflation, measured by the Consumer Price Index (CPI), dropped sharply below the 2% mark in September — marking its lowest level in over eight years. According to data released by the Ministry of Statistics and Program Implementation (MoSPI) on Monday, inflation cooled to 1.54%, driven largely by a steep decline in vegetable and pulses prices.

Economists noted that the full impact of the Goods and Services Tax (GST) rate reduction — effective from September 22 — will only be visible in the October inflation data, potentially driving prices down even further.

Inflation Hits Second-Lowest Level Ever Recorded

At 1.54%, India’s CPI inflation in September is the second-lowest reading since June 2017, when it touched a record low of 1.46% under the current CPI series. CPI inflation tracks the change in consumer prices compared to the same month a year earlier, offering a key measure of the economy’s cost pressures.

Food inflation — a major component of the index — continued its downward trajectory. The vegetable index declined by 3.2% month-on-month, translating to a -21.38% annual inflation rate.

Similarly, pulse prices saw a -15.32% decline. These steep drops helped pull overall food inflation down to -2.28%, its lowest since December 2018.

September also marked the fourth consecutive month of negative food inflation, suggesting that food items were cheaper than a year ago, benefiting consumers but squeezing margins for farmers and small traders.

“In rural areas, food producers continue to experience lower inflation than urban consumers.

“Seventeen of the 23 major CPI groups saw a decline in their inflation rates compared to August, showing a broad-based easing trend not seen since April 2024.”

Gold Inflation at an All-Time High

In contrast to cooling food prices, core inflation — which excludes volatile food and fuel prices — rose to a two-year high of 4.5%, driven by a massive spike in gold prices.

Gold, categorized under the “miscellaneous” group in the CPI basket with a 1.1% weight, saw its inflation surge to a record 46.87% in September, up from 40.35% in August.

The global gold rally has been phenomenal, with prices breaching the $4,000 per ounce mark, while domestic prices are nearing ₹1.3 lakh per 10 grams. On an annual basis, gold inflation has nearly doubled, jumping from 19% in 2024 to 35% in 2025.

While this benefits investors holding the precious metal, it poses challenges for consumers and jewelers alike.

The elevated gold prices have made wedding jewelry and festive purchases significantly costlier, potentially curbing consumer demand during the ongoing festive season.

RBI Poised for More Interest Rate Cuts

The inflation data came just days after the Reserve Bank of India (RBI), on October 1, decided to maintain the repo rate at 5.5% while revising its inflation forecast downward to 2.6%.

The central bank’s Monetary Policy Committee (MPC) has already slashed policy rates by 100 basis points (bps) in 2025 to stimulate growth amid global headwinds.

With inflation undershooting the RBI’s own July–September forecast of 1.8%, economists now expect further rate cuts in the coming months.

The GST reductions from late September are expected to push inflation even lower in October, providing the RBI with additional room to ease monetary policy.

“The indirect tax relaxation will have a stronger disinflationary effect in October,” noted Radhika Rao, Senior Economist at DBS Bank. “Energy prices remain muted globally, cushioning the impact of a weak rupee.

Core inflation is likely to hover near 4.5%, but the RBI may prioritize growth revival over inflation control, potentially paving the way for another rate cut by year-end.”

October Outlook and Global Trade Concerns

Preliminary projections from IDFC FIRST Bank suggest that October CPI inflation could fall to just 0.2% — an all-time low if confirmed in November’s data release.

However, Chief Economist Gaura Sen Gupta cautioned that a rate cut will only be likely if growth momentum weakens.

India’s GDP growth had rebounded strongly to 7.8% in the April–June quarter, but upcoming data for July–September, expected at the end of November, will provide a clearer picture ahead of the RBI’s next policy decision on December 5.

External pressures remain a concern. The 50% bilateral tariff imposed by the US on Indian exports could potentially shave 1 percentage point off India’s GDP growth over the next year, disproportionately hurting MSMEs, which contribute nearly 45% of merchandise exports.

While the GST cuts could boost domestic demand by about 0.6 percentage points, the tariff drag may offset those gains unless trade negotiations with the US yield positive results soon.

What It Means for Consumers

Food & essentials: Prices of vegetables, pulses, and edible oils are likely to remain low through October, easing household budgets.
Gold & jewelry: Expect continued high prices; those planning purchases might consider waiting until early 2026 for potential corrections.
Loans & EMIs: With inflation falling and the RBI signaling dovish intent, interest rate cuts may come by year-end — a relief for home and car loan borrowers.
Investments: Fixed-income instruments could see lower yields, while equities may benefit from improved liquidity conditions if rate cuts materialize.

Summary

Retail inflation: 1.54% in September (8-year low)
Food inflation: -2.28%, 4th consecutive month below zero
Core inflation: 4.5%, driven by gold prices
Gold inflation: Record 46.87%
RBI policy: Repo rate steady at 5.5%, more cuts likely ahead
October CPI forecast: Around 0.2% (potential all-time low)

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