Lowest Ever Inflation Rate at 0.25% in October

In October, India witnessed a remarkable drop in consumer price inflation, rising by only 0.25% compared to the previous year. This is the lowest recorded inflation rate ever, primarily attributed to significant cuts in the Goods and Services Tax (GST) and a favorable base effect. The government’s data reflects these changes, indicating a shift in economic dynamics.

Interestingly, rural inflation has dipped into negative territory for the first time, where overall consumer prices fell by 0.25% compared to last year. In urban markets, however, retail prices increased by 0.88%. This contrast highlights the varying economic experiences between urban and rural India.

Food prices were a major contributor to the overall inflation decline. The food inflation rate plummeted to -5.02%, indicating that food prices were 5% lower than the same month last year. This deflation in food prices makes essential goods more affordable for consumers, which is critical for many households.

The reduction in inflation is also linked to the recent GST rate changes that took effect on September 22. The GST Council reduced the tax structure, collapsing it into just two categories: 5% and 18%, targeting everyday items, especially in the food segment. Economists had anticipated this drop and expected inflation to remain below 0.5%.

Despite the overall drop, economists caution that the full impact of the GST cuts may not yet be reflected in consumer prices. Core inflation, which excludes food and fuel, remained stable at 4.4%. Experts believe that as the lower GST rates are fully transmitted to consumers, core inflation will likely show more significant changes in the coming months.

As inflation rates fall, there is growing speculation regarding the Reserve Bank of India's (RBI) next course of action. The RBI's Monetary Policy Committee (MPC) is set to meet soon, and the latest data may encourage them to consider further interest rate cuts to support economic growth. The current policy repo rate stands at 5.5%, with some analysts suggesting that these inflation trends could influence future decisions.

While the fall in inflation is commendable, it is essential to monitor other economic indicators. Education and healthcare sectors are still experiencing inflation rates between 3.5% and 3.9%, reflecting rising costs due to fee revisions. However, as the GST cuts impact these sectors, there may be a reduction in their inflation rates as well.

In summary, the combined effects of favorable base conditions, sharp food price declines, and GST reductions have resulted in historically low inflation rates. Experts predict that for the full year, inflation may average around 2%, and the RBI's next policy meeting will be crucial in determining the future economic landscape.