CPI Inflation Falls to 0.25% - Why It’s Less of a Relief and More of a Warning for India

India’s retail inflation (CPI) for October 2025 dropped to 0.25%, the lowest since the new CPI series began in 2013. At first glance, it seems like a positive milestone - prices are stable, and the RBI’s long battle with inflation appears won. But when inflation falls too low, it often signals a deeper economic concern - weak demand and slowing growth.

Economy Needs Some Inflation

Inflation is not always a bad thing. The RBI’s inflation target band is between 2% and 6%, with 4% as the comfort level. It’s a range designed to ensure price stability without choking demand or growth.

At 0.25%, India’s inflation is well below this range. The fall has been steady from 6.21% in October 2024 to nearly zero a year later. But ultra-low inflation doesn’t necessarily mean prosperity. It could also reflect stagnant consumer demand, as people postpone purchases, expecting prices to fall further.

Key takeaway: Moderate inflation keeps the economy active - near-zero inflation can freeze demand.

What’s Driving Inflation Lower?

The sharp fall in CPI inflation comes from a mix of supply-side and policy-driven factors.

• Record Kharif output and expectations of a strong Rabi crop have pulled down food inflation sharply to -5.02%.
• The recent GST rehaul slashed tax rates on essential items, further easing price pressures.
• However, this also coincides with a drop in consumer demand, suggesting that households may be cutting back on discretionary spending.

A good harvest and tax cuts help short-term price control, but if demand stays weak, it points to a slowdown in consumption-driven growth - India’s biggest economic engine.

Also read: India’s New GST Slabs Explained

Key takeaway: Supply-side comfort alone doesn’t sustain an economy - spending power must remain intact.

Why Ultra-Low Inflation Can Be Dangerous

A line often quoted in economics says: “Low inflation is good until it starts looking like deflation.” The difference between the two is subtle but significant.

Low inflation can quickly slip into deflation, where prices fall continuously due to weak demand. Once that happens, consumers delay purchases, businesses lose revenue, and tax collections drop - creating a vicious slowdown loop.

This is already visible in India’s current scenario:

• Tax revenues are weakening, especially indirect tax collections.
• Consumer-facing sectors like FMCG and retail report slower volume growth.
• Corporate commentary increasingly points to cautious spending.

“When consumers stop buying, economies stop growing.” That’s the real warning behind this 0.25% CPI number.

Key takeaway: A slowdown in inflation can quickly turn into a slowdown in growth.

The Policy Dilemma – Monetary or Fiscal Push?

The obvious question is - can this be fixed? The RBI has already cut policy rates several times in the last year, but monetary transmission has reached its limits. Lower rates can’t revive demand if consumers are hesitant to spend.

This is where fiscal policy steps in. The government’s decision to cut GST rates recently helped trigger a small recovery in auto and consumer goods sales. Similar targeted fiscal measures could be extended to rural schemes, infrastructure spending, and MSME incentives.

Of course, it may strain fiscal deficit goals. But as the Fiscal Deficit – Is 4.4% Really Achievable in FY26? article explained, sometimes a short-term deviation is necessary to prevent a larger slowdown.

Also read: Fiscal Deficit - Is 4.4% Really Achievable in FY26?

Key takeaway: When monetary tools stop working, fiscal spending must take the lead to revive demand.

The Road Ahead

India’s challenge now is not inflation control - it’s demand revival. The RBI’s success in taming prices must now be balanced with policies that reignite consumer confidence. That means putting more disposable income in people’s hands through tax reliefs, wage hikes, or rural support programs.

In the short term, the government may need to accept a temporary fiscal slippage. The bigger risk is letting growth stagnate in the name of fiscal prudence.

In short - inflation at 0.25% is not a victory lap; it’s a wake-up call.

Key takeaway: Growth with moderate inflation is healthier than stability with stagnation.

Disclaimer: This article is for educational and informational purposes only. It does not constitute investment, policy, or financial advice.