Experts said this boosted chances of an interest rate cut at the December monetary policy meeting, although this also depends on factors such as economic growth and the conclusion of a trade deal with the US.
This marks the third time in FY26 that inflation has stayed below the central bank’s target range of 4% with a margin of two percentage points on either side of that figure. Inflation based on the Consumer Price Index (CPI) was 1.4% in September and 6.2% in October 2024.
“The positive impact of the GST rationalisation and deflation in the food and beverages category supported the lower inflation print,” said Rajani Sinha, chief economist at CareEdge Ratings.
A close call
A two-slab GST structure took effect September 22, lowering tax rates on various household items and consumer durables.
Food prices declined for the fifth consecutive month, falling 5% year-on-year compared with a decline 2.3% in September.
Last month, the Reserve Bank of India’s Monetary Policy Committee (MPC) kept the benchmark interest rate steady at 5.5%.
While lower inflation along with the dovish tone of the October policy document would support a 25 basis point rate cut in December, upcoming second-quarter GDP, trade and industrial activity data will be key, keeping the outcome a close call, said Aditi Nayar, chief economist at ICRA.
“Based on the trend of economic growth, the rationale for monetary easing is not very strong,” said Paras Jasrai, associate director at India Ratings and Research (Ind-Ra). “However, to prevent the economy going deep in sluggish and weak economic growth, the RBI may go for a 25-50 bps cut in repo rate in its December meeting.”
Gaura Sengupta, chief economist at IDFC First Bank, said the MPC’s decision will depend on growth conditions and trade outcomes.
“If India does not secure a trade deal with the US, rate cuts are likely, otherwise, the RBI may stay on pause,” she said.
Rural inflation fell by 0.25% year-on-year in October from 1.1% in the month before, while urban inflation eased to 0.9% from 1.8%.
Out of 22 major states and Union Territories, nine reported higher inflation than the national average. Kerala led with 8.6%, followed by Jammu and Kashmir (2.9%), Karnataka (2.3%), Punjab (1.8%), and Tamil Nadu (1.3%).
Food, core
Vegetable and pulses prices fell by 27.6% and 16.2%, respectively, in October. Among key items, onions became cheaper by 54.3%, potatoes by 36.7% and tomatoes by 42.9%.
Within the food basket, oil and fats recorded the highest inflation of 11.2%.
“Double-digit inflation in the edible oil basket remains a key monitorable, particularly as global vegetable oil prices stay elevated,” Sinha said.
Core inflation, which excludes food and energy, stood at 4.4% with the impact of GST cuts offset by surging precious metal prices. Gold prices rose 57.8 and silver 62.4%.
“By November, the impact of GST rationalisation should be more visible on core inflation,” said Madan Sabnavis, chief economist at Bank of Baroda.
The miscellaneous category recorded 5.7% inflation, led by personal care and effects at 23.9%.
ICRA expects inflation above 1% in November, while IDFC First Bank forecasts 0.6%. “The expectation is reflecting declining food prices and continued pass through of GST cuts,” said Sengupta.