A report says that with GST rationalisation, October consumer price index inflation could be closer to 1.1 per cent, lowest since 2004
Highlighting that the consumer price index (CPI) inflation may decline further due the Goods and Services Tax (GST) rationalisation, State Bank of India has stated that the retail inflation in October could decline to 1.1 per cent.
In a report, the bank noted that GST rate cuts may lead a 65 to 75 basis points (bps) decline in the retail inflation. Experience of 2019 also indicate that the rates rationalisation (primarily focused on reducing rates for common goods to 18 per cent from 28 per cent) led to almost 35 bps decline in overall inflation in just couple of months, SBI added.
“With new CPI series, we expect further moderation of 20 to 30 bps in CPI. All these factors (GST, base revision) indicate that CPI inflation will remain around lower end of inflation target for entire current fiscal year (FY26) and FY27,” the report pointed out.
Advocating for another rate cut in the next monetary policy committee (MPC) meeting of the Reserve Bank of India (RBI), the bank emphasised that there is no point in committing a type 2 error again (No rate cut with neutral stance) by not cutting rates in September as inflation will continue to remain benign even in FY27 and without a GST cut, it is tracking below 2 per cent in September and October. CPI FY27 numbers are now tracking around 4 per cent or less, with GST rationalisation, October CPI could be closer to 1.1 per cent, lowest since 2004.
“A rate cut in September is the best possible option for RBI which also projects it as forward-looking central bank,” the report highlighted. Monetary policy communication shapes expectations not only through formal rate decisions but also through the coherence of narratives articulated by committee members.
The report pointed out that even though in both June and August 2025 MPC meetings, there was a unanimous decision, however there were thematic differences within members which would help us evaluate how communication influences short term yields volatility.
