India’s CPI inflation plunged to a record low of 0.25%YoY in Oct-25 from 1.44% (revised lower from 1.54% previously) in Sep-25. The deceleration was well anticipated, however the extent of downside caught most by surprise, yet again. 

Key highlights of Oct-25 data

• On a sequential basis, CPI posted a marginal increase of 0.15%, significantly softer than the series median increase of 0.74% MoM usually seen in the month of October. 
• As such, annualized food and beverages inflation slipped further into negative territory, to a fresh record low of -3.72%. 
• Sequentially, the price decline was led by Fruits (-1.4% MoM), Pulses & products (-0.7% MoM), Oils & fats (-0.4% MoM), Vegetables (-0.3% MoM), Cereals & products (-0.2% MoM), Spices (-0.2% MoM), and Non-alcoholic beverages (-0.1% MoM). 
• In contrast, a sequential rise in price for categories like Eggs, Sugar & condiments, prepared meals, snacks, etc., and Meat & fish, capped the downside.
• Consolidated fuel inflation remained steady at 1.6%YoY. A sequential increase in the price of PDS and non-subsidised Kerosene (1.78% and 0.46%) along with Charcoal (0.36%) was offset by a decline in the price of Dung cake (-1.16%), Coal (-0.58%) and Firewood & chips (-0.5%). 
• Core CPI inflation (represented by the CPI excluding indices of Food & Beverages, Fuel & Light, and petrol and diesel items within the Miscellaneous basket) remained steady at 4.5%YoY amidst support from elevated prices of precious metals (the figure for Sep-25 was revised lower to 4.5% from 4.8% earlier). 
  1. Reflecting the outsized impact of precious metals on Core CPI inflation, Core-Core CPI inflation (represented by the exclusion of gold and silver indices from Core CPI) slipped to a series low of 2.6% YoY from 3.0% in Sep-25.

Inference and Outlook

The food-led comfort continues to underpin the trajectory of headline CPI inflation. The Oct-25 food disinflation is the steepest on record, with the second steepest decline being comparatively much lower, at -1.69%YoY in Nov-18. 

Looking ahead, the outlook on food prices for the near term continues to impart comfort. The above normal monsoon turnout this year, comfortable reservoir levels and bright prospects for Rabi crop, along with restrained increase in Kharif and more recently Rabi MSPs all augur well for food inflation outlook. 

Additionally, GST rationalisation has provided a further disinflationary impulse to CPI inflation trajectory. Oct-25 data shows a sizeable drop in core-core goods inflation, even as services inflation remained little changed (see chart). The GST induced changes in prices are likely to affect CPI inflation readings over the course of next few months, as prices adjust to new tax regime, related inventory adjustments as well as festive/wedding season buoyancy in demand. 

As such, despite the imputed GST-led annualized disinflationary impulse of ~130 bps, we anticipate the actual impact to be much lower, at about 60-70 bps and even lower at 30-35 bps in FY26. 

With downward surprises in successive CPI inflation readings, the overall inflation outlook remains extremely benign. However, few emerging upside risks that one needs to be watchful of:  

• The skewness in the geographical distribution of southwest monsoon rains worsened towards the end of the season with delayed withdrawal continuing in Oct-25. Several instances of heavy and unusual rain in select places are expected to have harmed the outstanding kharif produce especially in Maharashtra, Punjab, and Rajasthan, 
• The 3.6% depreciation in the INR is likely to add to inflationary pressures with a lag. As per the RBI’s estimates, a 5% depreciation in the rupee could increase CPI inflation by 35 bps via the import channel.
• Prices of previous metals - gold and silver despite the recent marginal correction, continue to remain elevated on an annualized basis. 
• Recovery in domestic consumption with support from good monsoon, FY26 budgetary provision of income tax relief, GST rate cuts, and a recent surge in transfer payments by various states.
• CPI inflation is likely to edge up, especially during Q4 FY26, as unfavourable base effects kick in. 

The sharp downside in Oct-25 print is likely to reset the CPI inflation trajectory lower for the remainder of FY26. Having said, CPI inflation is likely to have bottomed out, and subsequent readings should drift higher. Taking on board the larger than anticipated disinflationary impulse from food prices as well as GST induced price cuts, we now lower our FY26 CPI inflation forecast to 2.1% from 2.6% earlier. 

Table 1: Overview of key sub-components of inflation

Note:

1) CPI-Consolidated Fuel index includes Fuel & Light and Petrol & Diesel indices from the Miscellaneous basket.

2) CPI-Core excludes Food & Beverages and Consolidated Fuel indices from Headline CPI.

3) Readings under the memo items are derived from imputed indices. Figures have been rounded off. 

Chart 1: Decline in goods prices leads the downside in headline inflation, in addition to food prices