The uncertain comfort on prices

Inflation could stay low for some time, but should be viewed with caution amid global risks and climate change

- DHARMAKIRTI JOSHI & PANKHURI TANDON

A sharp slide in consumer inflation has been the most encouraging news for the Indian economy this year. And, going by history, this phase can continue for some time.

Inflation based on the Consumer Price Index (CPI) has been below 4 per cent in the past nine months, averaging 2.3 percent. It reached 0.25 percent in October, the lowest print in current CPI series, and below the Reserve Bank of India’s target range of 2 to 6 percent.

To be sure, there have been such episodes earlier, when average inflation was lower than 4 per cent. The longest was between fiscals 2000 and 2005, when CPI inflation averaged 3.9 per cent. The next was between fiscals 2018 and 2019, when inflation averaged 3.5 per cent. These episodes were accompanied by sustained drop in food inflation.

Yet, the gathering dark clouds of geopolitical uncertainty and climate change events seems to warrant a cautious view. The factors are telltale.

What decides how long inflation stays low?

Food, the main driver

All episodes of low headline inflation followed a sharp fall in food inflation, which has a 39 per cent weight in the current inflation basket. Food inflation was much lower than nonfood between fiscals 2000 and 2005 (2.2 percent versus 5.5 percent), and fiscals 2018 and 2019 (1 per cent versus 5.2 percent).

In the current fiscal, too, the decline in inflation was led by food (minus 1.1 percent in fiscal 2026 so far versus 7.3 percent in fiscal 2025).

Vegetables, pulses and cereals drove the decline in food inflation this fiscal. Among these, vegetable inflation is highly volatile, with large swings often creating statistical distortions. Average retail vegetable inflation, at minus 18.4 per cent this fiscal, is partly driven by a high base of 20 per cent in the last fiscal. CPI inflation excluding fruits and vegetables has been slightly higher (3.4 percent).