Retail inflation likely to dip below 2% in September on GST cuts, easing vegetable prices
GST rate cut, combined with a downward trend in vegetable prices, is expected to bring down retail inflation based on Consumer Price Index (CPI) below 2 per cent for September. Statistics Ministry will make the inflation data public on Monday.
Led by fading base effects and a moderation in the pace of contraction in food prices, CPI inflation rose to 2.1 per cent in August as against 1.6 per cent of July, whereas core CPI inflation rose to 4.3 per cent from 4.2 per cent during the same period.
GST rate cut was made effective from September 22. Some of its impact can be seen on prices of durable goods and some services although full impact is likely to be seen in October and November. Meanwhile, vegetable prices, along with that of cereals, saw a decline in September. Crisil Intelligence reported lower prices of vegetables and pulses in September. Prices of tomatoes eased on the back of higher supplies, while those of potatoes and onions softened as stored stocks entered the market. Pulses, too, saw price corrections, supported by an increase in imports of Bengal gram, yellow pea and black gram.
Considering these and GST factors, headline retail inflation is expected to see a moderation. According to Rahul Bajoria, India & ASEAN Economist at BofAS India, headline inflation will likely dip again below the 2 per cent mark - the lower tolerance band of RBI’s inflation target, at 1.5 per cent y-o-y for the second time this quarter following a marginal uptick in August, just above 2 per cent.
He listed three reasons. First, food inflation continues to remain low, as vegetable prices reverse in line with seasonal trends. Second, disinflationary effects of the GST tax reductions will start to become visible, especially with durable goods and services likely to see material disinflation for some time. And third, underlying price pressures from a commodity price perspective remain limited to gold and silver, and other commodities continue to see disinflation, given global price movements, outweighing the weakness in the rupee.
“CPI inflation is set to stay below 4 per cent for the eighth consecutive month and is likely to remain sub-4 per cent for the rest of 2025 and potentially in Q1 2026 as well,” he said, adding that core CPI is expected to come down to 3.8 per cent broadly on GST reductions, partially mitigated by ongoing increase in gold and silver prices.
A report by Bank of Baroda estimated retail inflation to be at 1.2 per cent. Headline CPI is largely experiencing a food-driven downward spiral. This is supported by robust arrival statistics of TOP (Tomato, Onion and Potato) vegetables.
“As per UPAJ data, arrival statistics for TOP cumulatively have risen by 10.3 per cent in FYTD26 (till 6 Oct) compared to -15.4 per cent in the same period of the previous year. The coming months also coincide with harvesting period of these vegetables. Hence, we expect prices to drop even further,” the report said.
