Retail inflation in India has dropped to an eight-year low of 1.54% in September, according to the National Statistics Office (NSO). This decline is attributed to a significant decrease in the prices of vegetables, pulses, cereals, and fuels. The inflation rate is now below the Reserve Bank of India's (RBI) lower tolerance limit of 2%, which supports the RBI's decision to maintain the repo rate at 5.5% during its recent monetary policy review.

This September figure marks the lowest inflation rate since June 2017, when it was recorded at 1.46%. In comparison, inflation was at 2.07% in August 2025. The average inflation for the second quarter of FY26 stands at 1.7%, slightly below the RBI's projection of 1.8%. The RBI has also revised its inflation forecast for the fiscal year 2025-26 down to 2.6% from 3.1% due to improved supply conditions and reduced cost pressures.

Food inflation has been particularly noteworthy, remaining in negative territory for the fourth consecutive month. The Consumer Food Price Index fell by 2.28% year-on-year in September, a significant drop from a high base of 9.24% last year. The vegetable index alone saw a decline of 21.38% year-on-year, contributing to the overall decrease in food prices.

However, core inflation, which excludes food and fuel, has risen to 4.43%, driven by increasing prices of precious metals, particularly gold. Gold prices have surged, with inflation in this category reaching a record high of 46.87% in September.

Economists predict that retail inflation could fall to around 1% in October 2025, influenced by the favorable base and ongoing declines in vegetable prices. The recent Goods and Services Tax (GST) rate cuts, effective from September 22, are expected to further ease inflationary pressures.

Rural inflation was recorded at 1.07%, while urban inflation stood at 2.04%. Analysts suggest that the RBI may consider reducing interest rates in its December review, contingent on the impact of previous rate cuts and the overall economic growth outlook. The central bank is tasked with keeping inflation within its target range, and the current trends indicate a broader benign inflationary environment across various consumption categories.