Retail inflation hits a historic low of 0.25% in October

For Preliminary Examination: Current events of national and international Significance

For Mains Examination: GS III - Economy

Context:

Retail inflation fell to a historic low of 0.25% in October, with the government attributing this fall to the first full month’s impact of GST rate cuts, a favourable base effect, and drop in inflation of several food items such as vegetables and fruits.

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What is Retail Inflation?

Goods and Service Tax

Key takeaways:

• Retail inflation refers to the rise in the prices that consumers pay for everyday goods and services—such as food, clothing, fuel, transport, and household items—over a period of time. It reflects how much more expensive life becomes for an average household.
• In India, retail inflation is measured using the Consumer Price Index (CPI), which tracks changes in the cost of a fixed basket of goods typically purchased by consumers.
• When retail inflation increases, it means that the purchasing power of money decreases, as people must spend more to buy the same items they used to afford earlier.
• This form of inflation is particularly important because it directly affects living standards. For instance, a rise in the price of essential commodities like vegetables, cereals, or cooking gas immediately impacts household budgets, especially for lower- and middle-income groups.
• It also influences economic decision-making at various levels. The Reserve Bank of India closely monitors retail inflation to decide monetary policies such as interest rates. If inflation rises beyond the RBI’s comfort zone, the central bank may raise interest rates to control spending and stabilize prices.
• Conversely, when inflation is low, it may lower rates to encourage borrowing and boost economic activity.

Additional Information

• Retail inflation dropped to an unprecedented 0.25% in October, a decline the government credits to the full-month impact of GST rate reductions, a favourable base effect, and lower price increases in several food items like fruits and vegetables.
• The government noted that this is the lowest inflation rate recorded in the current Consumer Price Index series, which began in January 2012. The data indicate that much of the decline in overall inflation stems from the statistical influence of the base effect on food prices.
• Figures show that the food and beverages segment registered a 3.7% fall in prices in October 2025, deepening the 1.4% drop seen in September. Economists, however, point out that this decline is largely due to the high inflation of 9.7% in the same month last year, making the current year’s figures appear more favourable rather than reflecting a true reduction in prices.
• In contrast, inflation in the housing sector rose slightly to 3% in October 2025, up from 2.8% in October 2024.
• Among other groups, clothing and footwear experienced a slowdown in price rise, easing to 1.7% compared to 2.7% last year, likely influenced by GST cuts. Meanwhile, inflation in the pan, tobacco, and intoxicants group edged up to 2.9% from 2.5% a year earlier.
• The miscellaneous category—which covers items outside the main sectors—saw inflation pick up significantly, rising to 5.7% in October 2025 from 4.3% in the same month the previous year

Follow Up Question

Mains

1.The recent decline in retail inflation to a historic low has been attributed largely to the statistical base effect rather than a genuine reduction in prices. In this context, critically examine the role of base effects in shaping inflation trends in India. Discuss how sector-specific variations—such as food, housing, and miscellaneous categories—complicate the interpretation of headline inflation

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