Context: India’s retail inflation eased to 1.54% in September 2025, marking its lowest level in over eight years due to sharp disinflation in food and beverages.

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• The Ministry of Statistics and Programme Implementation released data showing that India’s Consumer Price Index (CPI) inflation dropped to 1.54% in September 2025, down from 2.07% in August. 

• This represents the lowest inflation level in 99 months, reflecting a continued disinflationary trend observed throughout the year.

• The decline was largely driven by a steep fall in food and beverage inflation, which dropped to 1.4%, its lowest level in 81 months.

• The food basket slipped into deflation with a reading of -2.28%, primarily due to falling prices of vegetables and pulses, which remained in deflation for the eighth consecutive month.

• The inflation in vegetables was recorded at -21.4%, while pulses stood at -15.3%, indicating sustained supply-side improvements.

• Despite moderation in food prices, inflation in miscellaneous items increased to 5.35%, mainly due to rising prices of gold and silver.

• Personal effects inflation also rose to 19.4%, the highest level since the start of the series, reflecting increased prices in precious metals and related goods. 

Inflation Targeting in India

• Inflation targeting is defined as a framework for policy decisions in which the central bank makes an explicit commitment to conduct policy to meet a publicly announced numerical inflation target within a particular time frame.

• Monetary Policy Framework Agreement

• The Government of India and Reserve Bank of India signed a Monetary Policy Framework Agreement in February 2015 to primarily maintain price stability, while keeping in mind the objective of growth.
• The inflation target was set by the government in consultation with RBI with the possibility of revisiting it after five years.

• Flexible inflation targeting (FIT)

• India formally adopted FIT in 2016 through amendments to the RBI Act, 1934.
• Under FIT, RBI targets Consumer Price Index (CPI) inflation (headline inflation) to be maintained at 4% with a tolerance band of ±2 percentage points (i.e., the target range is 2% to 6%).