India Inflation Slowed to Record Low in October

Rohit Chopra, EM Equity Portfolio Manager at Lazard Asset Management, discusses emerging markets like India and the long term investment opportunities they offer.

India’s inflation rate fell to a record low in October, driven by a sharp drop in food prices, prompting economists to predict more aggressive interest rate cuts.

The consumer price index rose 0.25% from a year earlier, according to data released Wednesday by the Statistics Ministry — below the 0.4% increase forecast by economists in a Bloomberg survey. The reading was the lowest since the current CPI series began in 2012.

Food prices — which make up about half of the consumer price basket — slid deeper into deflation, dropping by a record 5.02% from a year earlier. The fall was amplified by last year’s high base of comparison and improved supplies following surplus rains. Vegetable prices fell 27.57% in October, extending their decline for a ninth straight month.

The Wednesday data also captures the first full month after the government overhauled consumption taxes, which led to lower prices for everyday household items.

Economists said inflation will now likely undershoot the Reserve Bank of India’s forecast of 2.6% for the fiscal year through March 2026, and come in well below the 4% target. The central bank has forecast inflation will rebound to 4% next quarter as favorable base effects fade.

“Given repeated undershoots versus RBI’s inflation forecasts, we believe the policy focus on one-year-ahead inflation forecast looks increasingly misplaced in a fast-changing environment,” said Madhavi Arora, an economist at Emkay Global Financial Services Ltd.

Indian stocks posted their third straight day of gains ahead of the data. The yield on the sovereign 10-year bond fell 2 basis points to 6.46% at the market close on Wednesday.

The softer inflation reading last month not only bolsters the case for a quarter-point rate cut in December but also fueled bets that the RBI may deliver another reduction in February. The central bank lowered its benchmark repurchase rate by 100 basis points since February but paused in October.

Inflation for the current financial year may drop below 2%, “paving the way for a December rate cut,” as well as “another 25 basis points cut” in the February monetary policy meeting, said Garima Kapoor, an economist at Elara Securities India Pvt Ltd.

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