Context:
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Retail inflation, measured by the Consumer Price Index (CPI), declined sharply to a record low of 0.25% in October 2025.
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This marks the lowest inflation level since January 2012 under the current CPI series.
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The decline is attributed mainly to GST rate cuts, a favourable base effect, and a sharp contraction in food prices.
Key Highlights:
Inflation Trends (October 2025)
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Retail inflation: 0.25% (YoY) — historic low.
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Food & beverages inflation: –3.7%, indicating contraction.
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Food prices contracted in 4 out of 7 months of the current financial year.
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Fuel & light inflation: 2% in October 2025 (vs –1.7% in October 2024).
Drivers of Decline
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Base Effect:
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Food inflation was very high in October 2024, making the year-on-year comparison favourable.
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Economists highlight that the fall reflects statistical moderation rather than broad price deflation.
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GST Rate Cuts:
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Reduced GST rates on select items led to lower indirect tax incidence, easing retail prices.
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Food Price Moderation:
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Decline in prices of oils & fats, vegetables, fruits, and other essentials.
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Major contributor to overall inflation moderation due to high CPI food weightage.
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Category-wise Movement
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Most CPI categories recorded higher inflation than last year, except food and beverages.
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This indicates that non-food inflationary pressures persist, though masked by food deflation.
Key Concepts Involved:
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Retail Inflation: Measures price changes faced by households for a consumption basket.
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Consumer Price Index (CPI): Primary inflation metric for monetary policy and welfare indexing.
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Base Effect: Influence of last year’s price levels on current inflation calculations.
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Goods and Services Tax (GST): Nationwide indirect tax impacting final consumer prices.
UPSC Relevance (GS-wise):
GS 3 – Indian Economy (Prelims & Mains)
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Inflation measurement and interpretation
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Role of base effect in macroeconomic data
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Impact of indirect tax policy (GST) on prices
Prelims Focus:
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Lowest CPI inflation since January 2012
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Food inflation’s role in headline CPI
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Understanding base effect vs real price decline
Mains Enrichment:
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Analyze whether low inflation driven by base effects reflects true demand-side moderation.
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Discuss policy implications of ultra-low inflation for growth, consumption, and fiscal policy.