GST Cuts Lower Inflation: Experts Predict Continued Decline

New Delhi, Nov 13 (PTI) The GST rate cuts brought down retail inflation by 85 basis points to a record low of 0.25 per cent in October and the declining trend is likely to continue in the coming months, according to experts.

The Consumer Price Index- (CPI-) based retail inflation was lowest in the current series (base year 2012), which captures data since January 2014.

CPI inflation increased in case of personal care and effects, owing to higher gold prices, at 57.8 per cent, an SBI research report said, adding that if if the precious metal is excluded, headline CPI turns the print negative at -0.57 per cent year-on-year.

"We believe, given the current trend, CPI, excluding gold, would remain negative even in the next two months," the 'SBI Ecowrap' said.

GST rationalisation, which came into effect from September 22, has also led to reduction in CPI inflation.

"We earlier estimated that CPI will moderate by 65-75 bps owing to GST. However, the decline in CPI inflation due to GST has been higher at around 85 bps," the report said.

It further said the CPI inflation trajectory calls for a strong case for decisive actions. The higher growth numbers for second quarter and the October inflation print will pose a serious dilemma for the RBI for a rate action in December.

"Under these circumstances, we believe December rate cut is a close call and not a given. It will entirely depend on how the RBI is able to communicate to the market a rate cut when growth numbers are in excess of 7 per cent," the SBI report said.

The next meeting of the Resrve Bank's Monetary Policy Committee (MPC) is scheduled during December 3-5, 2025.

Commenting on the inflation data, Dipti Deshpande, Principal Economist, Crisil, said October was the first full month to reflect the impact of lower goods and services tax (GST) rates on mass consumption goods.

With rate cuts now in effect, continued benefits are expected in coming months, she said.

"We believe, over time, the inflation benefits of reduction in GST rates for non-food categories will be greater than for food categories. Although food has a larger weight in the overall CPI, the extent of net GST rate reductions for non-food items is greater," Deshpande added.

She also anticipates a repo rate cut by the Reserve Bank of India in the upcoming monetary policy review.

Rajeev Juneja, President of industry body PHDCCI, said the government's prudent GST reforms are showing a favourable impact on the economy, which is reflected in softening of headline inflation, along with base effect.

To further bolster the impact of this period of low inflation, thrust should be laid on building infrastructure and logistics projects, strengthening agriculture supply chains to avoid food price spikes, and prioritising technology-driven productivity gains in manufacturing and services, he added.

Aditi Nayar, Chief Economist at ICRA, said the Reserve Bank's Monetary Policy Committee (MPC) is likely to pare its CPI inflation projection for FY26 further from 2.6 per cent, driven by the soft sequential momentum in food prices as well as the impact of the GST rate rationalisation on several items in the CPI basket.

"This, along with the dovish tone of the October 2025 policy document, would support a 25-bps rate cut in the December 2025 policy review, unless Q2 FY26 GDP growth surprises on the upside," she said.

Rajani Sinha, Chief Economist, CareEdge Ratings, said with the GST rate rationalisation rolled out towards the end of September, its positive impact was reflected in October's lower inflation reading.

"From a monetary policy perspective, moderating inflation provides the RBI with greater room to focus on supporting economic growth, in midst of continued external headwinds and uncertainties surrounding the trade negotiations with the US. If growth weakens in H2 FY26, the latest inflation readings could create scope for a rate cut," Sinha added.