India's Inflation Seen Sliding To Two-Decade Low Amid GST Cuts, Softer Prices

India's inflation outlook is moving into record-low territory, with SBI Research projecting that the consumer price index could fall to around 1.1% in October, marking its lowest level since 2004.

The sharp easing, helped by GST cuts and softening prices across most categories, has intensified debate on the Reserve Bank of India’s policy path ahead of its September meeting.

"There is merit and rationale in going for a September rate cut," SBI Research said in a report, noting that inflation will remain "benign" even through FY27. Without the GST cut, CPI is already tracking below 2% in September and October, it said. With the tax rationalisation factored in, next month's CPI could touch 1.1%, marking the lowest reading in two decades.

Brokerages are split on what this means for monetary policy, even as most agree the near-term trajectory is subdued. Goldman Sachs pointed out that the uptick in headline CPI was largely food-driven, led by vegetables and animal proteins.

CLSA highlighted that over 70% of the CPI basket is now running below 4% inflation—a historic low. Citi echoed this view, calling August inflation "benign" and closely aligned with RBI's own projections.

BofA noted that headline inflation has moved back within the RBI's 2–6% tolerance band after slipping to an eight-year low in July. Nuvama, too, said inflation remains benign despite food-led pressures, pointing to a sharp disinflationary trend across core items.

The consumer price index has been on a steep downward path since October 2024. RBI Governor Sanjay Malhotra, in a TV interview, stressed that the central bank would prioritise the inflation outlook over past data in shaping policy. "Inflation is not going to outweigh growth for the RBI’s assessment," he said.

Against this backdrop, SBI has warned against a "Type 2 error" — holding back a rate cut despite benign inflation. With GST rationalisation seen delivering multiplier effects and global yields hardening, the bank argued that an early rate cut would project RBI as a forward-looking central bank and help anchor expectations.

As the debate sharpens, markets will be watching whether the central bank seizes the low inflation window in September or waits for more clarity on food prices and monsoon effects before moving the interest rate.