Retail inflation hits a record low of 0.3% in October, fueled by a combination of factors. The impact of the Goods and Services Tax (GST) rate cut and a sharp decline in food prices have contributed to this significant drop. The National Statistics Office (NSO) data reveals that the consumer price index (CPI) inflation rate fell to 0.3% in October, a substantial decrease from the 1.4% recorded in September and a dramatic shift from the 6.2% in October of the previous year. This represents an 119-basis-point reduction in inflation compared to September, marking the lowest year-on-year inflation in the current CPI series.
The food sector saw a notable shift, entering the deflationary zone with a 5% contraction in October. This is a significant 269-basis-point decrease in food inflation compared to September, indicating a substantial cooling in food prices. The vegetable inflation rate contracted by 27.6% in October, while pulses and products inflation fell by 16.2%. Onion inflation dropped by 54.3%, tomato inflation by 42.9%, and potato prices contracted by 36.7%.
Interestingly, the data also highlights a rural-urban divide in inflation rates. The rural inflation rate contracted by 0.3%, while the urban rate was higher at 0.9%. An official statement attributed this decline in headline inflation and food inflation to the full month's impact of the GST rate cut, a favorable base effect, and a drop in the inflation of oils and fats, vegetables, fruits, eggs, footwear, cereals, and products, as well as transport and communication.
This record-low inflation rate has sparked hopes of a potential cut in interest rates by the Reserve Bank of India (RBI) in December. However, it remains to be seen whether this trend will continue and what impact it will have on the broader economy.
