September 2025 Retail Inflation Data and Implications for RBI
The September 2025 retail inflation was recorded at a 99-month low of 1.54%, which has significant policy implications for the Reserve Bank of India (RBI).
Inflation Trends
- Inflation has been decreasing every month this financial year, except for August.
- The average inflation rate for the first half of the fiscal year is 2.2%, within the RBI's comfort band of 2%-6%.
- The RBI's target has been 4%, and there is a suggestion that the central bank should aim for this target now that inflation is below it.
Current Economic Scenario
- Consistently low inflation indicates that supply is outstripping demand.
- Example: Inflation in clothing and footwear was 2.3% in September 2025, with a consistent fall over the past two years.
- India is not adept at relying on foreign demand due to historic trends and current tariff tensions affecting exports.
Government Measures and Economic Needs
- The government has tried to stimulate domestic demand through income-tax and GST rate cuts.
- Households are using tax rebates more for saving and debt reduction than for consumption.
- GST cuts have resulted in only temporary increases in purchases.
- A sustained increase in real wages is necessary, with a need for private sector involvement.
- Private sector investment announcements have grown strongly but need to be realized into actual projects.
RBI's Role and Challenges
- The RBI could support economic growth by significantly cutting interest rates in the upcoming Monetary Policy Committee meeting.
- There is a need for the RBI to address the inaccuracy of its inflation forecasts, which were drastically revised from 4% to 2.6% within six months.
- The effectiveness of the RBI's inflation estimation process is crucial and requires improvement.